Trick or treat? The US government has a $250bn bag of goodies ready for the nation’s banks. The question is who gets what. In strong-arming the Big Nine into accepting its offer, the Treasury underpinned about two thirds of the US industry’s total assets with a slug of equity capital and ring-fenced those institutions deemed too big to fail. Now, though, it must (in theory voluntarily) distribute the remaining $125bn among the other 8,000 banks. In reality, the crowd of potential recipients is far smaller. Many tiddler-banks have avoided the worst by sticking to the basics of lending locally rather than branching out into ill-advised activities further afield. Backing the healthy here would also barely budge lending levels, while the sickly can be safely put out of their misery.

Next to feel the government hand will be the rest of the top 100, particularly banks with $10bn-plus in assets. The strongest, such as US Bancorp and North Carolina-based BB&T, have little reason to go cap in hand to Washington. And the moribund, the authorities insist, will not be saved. But, like it or not, the government is now in the business of picking winners and losers. That could be tricky. National City, for example, while battling to contain its real estate losses, has a double-digit tier one capital ratio after April’s injection of private equity funds.

Surging loan losses, though, could quickly chomp through most capital cushions. Institutional Risk Analytics predicts losses will peak next year at twice the highs seen in the savings and loans crisis. Rather than wait for more banks to hit the critical list, the Treasury should deploy its treats to coax regional tie-ups in the middle ranks, starting in overcrowded markets such as Ohio. Many banks will resent a government hand in their destiny. But when thinking about ways to distribute the goodies, the priority is to pre-empt nasty surprises.

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