Picture giant electronic rivers of cash flowing toward nine major banks, giving the government an unprecedented direct stake in the institutions in its bid to contain the financial crisis.
The Treasury Department is starting to send out $125 billion to the banks this week. But how exactly does the money get from point A to point B?
Some questions and answers about the distribution of the bailout money:
Q: How will it take place?
A: The money that is flowing to the nine banks under the government's so-called capital purchase program likely would be kept in a special account at the Treasury Department, which can write electronic checks on it. The checks would be sent to an intermediary bank, which then would distribute them to the nine banks.
That will officially make U.S. taxpayers part-owners of the banks — including Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co., each expected to receive $25 billion. It also will mark the first disbursement of resources from the government's $700 billion financial rescue package enacted by Congress early this month.
The idea is to shore up the banks' balance sheets so they will return to normal lending and get money flowing again in the seized-up credit markets.
Q: Is that how the government usually sends money out?
A: Yes. The Treasury's Financial Management Service distributes more than $1.6 trillion a year in Social Security checks, federal tax refunds and veterans' benefits. Seventy-three percent of the transactions are done by electronic-funds transfers, mostly through direct deposits to recipients' banks; the remainder go out by paper check.
It costs the government only 10 cents to issue an electronic transfer, as opposed to 98 cents for a paper check payment, and the electronic system is considered safe. Electronic transfers aren't vulnerable to weather delays and other factors that can affect delivery of paper checks, officials say.
Q: What happens after the nine banks receive the money?
A: The banks will give the Treasury the corresponding amount worth of senior preferred shares — stock that doesn't confer shareholder voting rights, but that gets top priority when dividends are paid out. The department plans to announce on its Web site the amount each bank is receiving.
Treasury and the banks signed agreements on the amounts on Sunday.
Q: Is that it for the government's program to buy stakes in banks?
A: Treasury plans to buy an additional $125 billion in shares of large regional banks by year's end. Already, at least 15 regional banks have received preliminary approval from the government, including KeyCorp for a $2.5 billion capital injection and SunTrust Banks Inc. for $3.5 billion.
Q: What are the other big banks that are getting bailout money, besides Bank of America, Citigroup and JPMorgan Chase?
A: Merrill Lynch, which was bought recently by Bank of America and so is likely receiving part of its $25 billion share; Wells Fargo & Co., receiving $25 billion; Goldman Sachs Group Inc., $10 billion; Morgan Stanley, $10 billion; Bank of New York Mellon Corp., $3 billion; and State Street Corp., $2 billion.