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Treasury considering taking stakes in banks: report

The moves would come after Treasury has had little success in unlocking frozen credit markets, The Times said on its website, quoting government officials.

Treasury officials told the newspaper the $700 billion bailout bill gives them the authority to inject cash into banks that request it, a move that would quickly strengthen banks' balance sheets and hopefully persuade them to resume lending.

In return, Treasury has the right to take ownership positions in the banks, including healthy ones.

The bank recapitalization plan, in its preliminary stages, has emerged as one of the preferred options being discussed in Washington and on Wall Street to address concerns banks have about lending to one another and to other customers, the paper said.

Treasury Secretary Henry Paulson spoke of the department's new authority to inject capital into banks as one of the powers in the new bailout law.

"We will use all the tools we've been given to maximum effectiveness," he told a media conference on Wednesday, "including strengthening the capitalization of financial institutions of every size."

Treasury officials worry that if not done properly, government purchases could alarm bank shareholders by appearing to be punitive or be interpreted as a sign that target banks were failing, the paper said.

The bailout law calls for limits on executive pay when capital is injected into a bank and bars banks from paying its chief executive a "golden parachute" package.

The Treasury plan resembles one announced on Wednesday in Britain whereby the government would offer banks up to $87 billion to shore up their capital in exchange for preference shares. It also would provide a guarantee of about $430 billion to help banks refinance debt.