Interesting research to share

The Treasury Department is expected to announce a plan to directly investment in US banks, which will be similar to recent European proposals. The plan is the latest step towards shoring up troubled financial institutions and unfreezing interbank lending. According to media reports, the Treasury will invest up to $250 bln into banks in the form of preferred equity. The $250 bln will come from the funds provided for by EESA, but there will also be money left under EESA to be used for troubled asset purchases. The FDIC is expected to guarantee new bank debt issued by June 30 with maturities up to three years and will also offer unlimited deposit insurance temporarily for non-interest bearing accounts that are typically used by small businesses. Secretary Paulson has already convinced several large banks to agree to the proposal, leaving the government with the potential to invest in many more banks. The Treasury investments will be structured so as to give banks the incentive to attract private capital and buy out the government stake. Credit conditions are showing modest improvement with each new announced initiative but the implementation of the various plans is taking place gradually. 3m LIBOR fell another 12bp to 4.64% and overnight LIBOR is now 2.18% versus the 5.09% we saw last week. The 3m TED and 3m LIBOR-OIS spreads have tightened (445bp and 339bp, respectively) but they still remain elevated. Press reports suggest the Fed's plan to directly lend commercial paper will start in about two weeks. The new plan improves sentiment and we could see the dollar benefit against the Swiss franc and the yen. Ahead today is a press conference at 830 ET on the direct investment plan.