More Details Emerge About Obama Bank Rescue Plan

Amid rumors that the White House is considering nationalizing some banks, federal regulators today provided more details on how they plan to use taxpayer funds to shore up the financial system.

The revamped rescue package, announced earlier this month by Treasury Secretary Timothy Geithner, will use taxpayers' money to finance buying up to $1 trillion in toxic bank assets. It will also expand a program that makes more money available for consumer loans and conduct a "stress test" of the nation's largest banks to decide how much federal aid each will need.

Regulators announced this morning that the banks can give the government common stocks rather than the preferred stocks formerly mandated. That takes some pressure off the banks by reducing dividend payments. Meanwhile, the government would have a larger stake in the banks.

They also said that the "stress tests" will begin on Wednesday, starting with the 20 or so banks that are worth more than $100 billion. Some have speculated that if the tests don't go in the banks' favor, they could be closed or nationalized.

Fears of nationalization were stoked further yesterday when the Wall Street Journal reported that the federal government is in discussions with Citigroup that could end with the government owning as much as 40 percent of Citigroup's common stock. That wouldn't cost the government more money than it already has pumped into the bank, as many of the preferred shares it already owns would be converted into common stock. But it would mean that other shareholders in the bank would find their stock diluted.

Citigroup's stock price fell below $2 last week to its lowest price in 18 years.

Today's statement sought to quell those rumors, underlining that the program brings the "strong presumption" that" banks should remain in private hands."

Even so, a spokesman for the Treasury Department told Politico that while officials "don't comment on conversations with specific banks," they are "open to considering a request" if it could promote long-term stability for the economy. 

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