Fed to pay higher rates on bank reserves

WASHINGTON (AP) -- The Federal Reserve is raising the interest rate it pays commercial banks on excess reserves, helping the central bank battle the credit crisis.

The move will encourage banks to keep excess reserves at the Fed because they will be earning higher interest on that money. That will give the Fed more control over interest rates and more leverage to battle the credit debacle.

Under the new formula, which takes effect on Thursday, the Fed will pay banks 1.15% on excess reserves. The Fed pays banks three-quarters of a percentage point under the old formula. 


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Poll: Low marks for bailout

NEW YORK (CNNMoney.com) -- A majority of Americans aren't happy with the way Treasury Secretary Henry Paulson is handling his job or with the financial rescue package he and Congress created, according to a poll released Wednesday.

Of 1,058 people surveyed in a CNN/Opinion Research Corp. poll, 64% said they disapproved of Paulson's performance and 28% said they approved. The poll was conducted on Oct. 17-19 and the margin of error was plus or minus 3 percentage points.

The Treasury secretary, however, fared better than the president has recently. In an earlier poll, 72% of Americans said they disapproved of the way President Bush is handling his job.

A majority in the latest poll - 56% - said they also oppose the financial rescue package passed by Congress earlier this month. That package allows Treasury to buy troubled assets to stabilize the financial system.

In particular, 53% of Americans polled said they thought a major action taken as a result of that package - Uncle Sam providing capital to banks and other financial institutions in exchange for an equity stake in those companies - is a bad idea.

Fifty-eight percent also think the idea of the government providing financial assistance to keep a big company in business in exchange for a stake in that company is also a bad idea.

The Treasury has stepped in to help giant insurer American International Group (AIG, Fortune 500), which has received more than $100 billion in government loans. It has also taken over and agreed to provide funding for mortgage finance companies Fannie Mae and Freddie Mac.

There is one financial rescue strategy that won support in the poll: 58% of those polled said they favored government assistance to homeowners who can't pay their mortgages.

The financial rescue package requires the government to encourage lenders to modify mortgages in cases where the government holds at least a partial stake in a mortgage-backed security. And in cases where the government buys loans directly, it may modify the loans on its own.

On Oct. 1, the Federal Housing Administration launched a program to encourage lenders to write down loans to below a home's appraised value in exchange for refinancing a troubled borrower into an FHA-backed loan.

Early reports on that program, however, suggest that any positive effect on foreclosures may take time.

Meanwhile, FDIC Chairwoman Sheila Bair, who was instrumental in working on the financial rescue package provisions, has said publicly she thinks the government now needs to do more to help struggling homeowners. 


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Oil ends at 16-month low

NEW YORK (CNNMoney.com) -- Oil prices fell sharply on Wednesday, reaching prices not seen since June of last year, after the government reported a greater-than-expected rise in crude stockpiles - an indication that the slow economy may have impacted demand for fuel.

U.S. crude for December delivery lost $5.43 to end the session at $66.75 a barrel in New York.

Oil had been down about $3.98 a barrel at $68.20 just before the report's release.

Wednesday's settle price was the lowest since June 13, 2007, when oil ended the day at $66.26 a barrel.

Wednesday was also the first day of front-month trading for the December contract. The November contract closed at $70.89 a barrel when it expired on Tuesday.

U.S. inventories: In its weekly report, the government said crude stockpiles had risen by 3.2 million barrels in the week ended Oct. 17. A buildup in crude stockpiles often means that refineries have ample oil, and may not need to buy as much crude through the next week.

Supplies of motor gasoline rose by 2.7 million barrels, and supplies of distillates, which are used to make diesel fuel and home heating oil, increased by 2.2 million barrels.

Analysts polled by Platts, the energy research arm of McGraw Hill, had predicted a crude increase of 2.9 million barrels. Experts had also expected a 3 million barrel buildup in gasoline stockpiles, and a 600,000 barrel rise in distillate stocks.

Falling demand has helped drive oil prices down more than 50% since they rose to a record high of $147.27 a barrel in mid-July.

"Everybody pretty much realizes that the move of last August to the 4th of July - that's just speculation, that was just a bubble," said Steve Brassey, senior broker with Sonic Futures in California.

Gasoline prices have also fallen from a high of $4.114 a gallon on average, according to motorist group AAA.

By Wednesday, the average U.S. price had fallen to $2.858 a gallon, AAA said.

According to the Energy Department, gasoline consumption for the last four weeks averaged 8.8 million barrels a day, or 4.3% lower than the same period last year.

Stocks: Oil and commodity prices have been falling along with the stock market over the past several weeks.The Dow Jones industrial average was trading down more than 3% during Wednesday's session.

Investors and funds that had hedged against stock market losses by buying commodities, which usually counter one another, are being forced to sell their hedges, according to Brassey.

OPEC meeting: Though the U.S. inventory report was largely negative for oil prices, it may lead the Organization of Petroleum Exporting Countries to cut production deeper when it holds an emergency meeting scheduled for Friday, according to James Williams, energy economist with WTRG Economics in Arkansas.

OPEC, which controls about 40% of the world's oil, has expressed concern that record high oil prices, followed by global economic stagnation, may have permanently impaired demand for crude products.

Last week the organization moved up an emergency meeting by nearly a full month as oil prices plummeted. Experts had expected the organization to cut production by around 1 million barrels a day.

"You could make an argument that OPEC is probably going to cut more deeply in the wake of this report," said Williams.

"Iran, Venezuela and the traditional 'price hawks,' and even some (OPEC members) that are usually more neutral, have more ammunition going into this meeting," he added.

Dollar: As the global economy slowed, investors sought the stability of the dollar, which also contributed to lower oil prices.

The dollar gained strength Wednesday against major currencies such as the 15-nation euro and the British pound.

Oil, like other commodities, is traded in dollar terms. So when the value of the dollar goes up, it often means that the dollar-denominated price of crude falls. 


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Job losses cut across 41 states

NEW YORK (CNNMoney.com) -- The number of states suffering monthly job losses more than doubled in September, with Michigan losing the greatest number of jobs, according to a government report released Tuesday.

Private sector and government jobs fell in 41 states and the District of Columbia last month, the Labor Department said. By comparison, only 18 states reported monthly job losses in August.

The widespread job losses are a sign of a recession, said Bob Brusca, an economist at Fact and Opinion Economics in New York.

"You expect to see job losses across the board, across the country," Brusca said.

The numbers released Tuesday underline the grim condition of the nation's job market.

Earlier this month, the Labor Department reported that net payrolls nationwide declined by 159,000 in September, the ninth straight month the U.S. economy has lost jobs. The unemployment rate remained unchanged from the prior month at 6.1%.

Eleven states reported jobless rates higher than the national average. Rhode Island posted the highest at 8.8%, an increase from 8.5% in August. Michigan had the second highest rate, 8.7%, which fell from 8.9% the month before.

Michigan lost 28,300 jobs in September and has lost 77,900 jobs in the past year. Georgia lost the second greatest number of jobs - 22,300 - down 61,100 over the past year. Louisiana shed 17,500 jobs in September, a figure not 'substantially' affected by Hurricane Ike, according to the report.

Michigan, home to the country's auto industry, has reported job losses as auto manufacturing plants close and automakers discuss mergers. Just last week, General Motors (GM, Fortune 500) announced that it would close a metal stamping plant near Grand Rapids, Mich., by the end of next year, costing about 1,340 hourly jobs.

Brusca said it's not surprising that Midwestern states have shed a high number of jobs.

"The Midwest has been having more trouble with jobs, that's where manufacturing industries are concentrated," Brusca said. "With the treacherous situation with the auto industry, it'd be surprising if they didn't report job loses," he said.

Nine states posted job gains. Missouri, the state reporting the largest monthly increase in employment, added 3,800 jobs. It was followed by Nebraska, Wyoming, West Virginia and Virginia. 


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Lots of banks interested in bailout

NEW YORK (CNNMoney.com) -- Banks of all sizes are interested in a piece of the federal government's $250 billion fund to recapitalize financial institutions, Treasury Secretary Henry Paulson said Monday.

"We have received indications of interest from a broad group of banks of all sizes," he said at a briefing in Washington.

The capital infusion is among the government's latest attempts to strengthen the teetering United States financial system. The funds come from the $700 billion bailout package passed by Congress in early October and follows similar moves by European governments.

Many America banks, however, are lukewarm to the idea of having the government take an equity stake in the program, which was announced a week ago.

Banks must apply for funds by Nov. 14, Paulson said. They must consult with their primary federal regulator before applying.

Money available soon

Banks could start receiving money soon after they apply, regulators said. The government won't wait until the deadline to release the funds.

Under guidelines released Monday, an eligible institution will be able to sell the government an equity stake of up to 3% of its risk-weighted assets. The aid will take the form of preferred stock.

Nine of the nation's largest banks have already agreed to participate in the program and will receive half the funds. They are: Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Wells Fargo (WFC, Fortune 500), Bank of America (BAC, Fortune 500), Morgan Stanley (MS, Fortune 500), Goldman Sachs (GS, Fortune 500), Merrill Lynch (MER, Fortune 500), State Street (STT, Fortune 500) and Bank of New York Mellon (BK, Fortune 500).

Any bank, savings association, bank holding company or savings and loan holding company established and operating in the United States is eligible. Institutions controlled by foreign companies are not.

However, regulators indicated that banks in serious financial trouble may not qualify for the capital injections. When pressed, they declined to specify why a bank would be deemed too unhealthy to participate. Among the criteria regulators are examining are an institution's health, lending ability, possibility of outside capital raising and merger opportunities.

Being involved in a merger could make an otherwise unhealthy bank eligible for an infusion, they said.

The government investments will be considered Tier 1 capital, which supports a bank's lending operation.

There is enough money to go around, Paulson said.

"Sufficient capital has been allocated so that all qualifying banks can participate," Paulson said. "Let me be clear that this program is not being implemented on a first-come, first-served basis."

Banks still on the sidelines

Banks, however, may not rush to sign up for the infusion, said Sean Ryan, analyst with Sterne Agee. Executives may be concerned about the stigma and about letting the government into their affairs, though the government stake does not have voting power.

Still, there's no question whether banks should participate since the funding is so cheap, he said. The government program requires the institutions pay dividends of 5% for the first five years and 9% after. Other banks raising capital are paying upwards of 10% on preferred shares in their offerings.

"It should be a fairly easy decision," Ryan said. The terms "are much more lenient than banks will find elsewhere anytime soon."

Banks are still waiting for more details on the use of the funding, the program's cost and the eligibility criteria, said Wayne Abernathy, executive vice president for financial institutions policy at the American Bankers Association.

Though many were worried about a stigma, Paulson's characterization of the capital plan as a way to revive the economy may put some bankers at ease, he said.

"If this is seen in the public mind as a bailout for weak banks, then who wants to step up for that kind of moniker?" Abernathy said. "But if this is all about banks being partners with the public sector to be engines of economic growth, then I think bankers can warm up to that because that's how banks see themselves."

About half of Independent Community Bankers of America members surveyed said they'd be interested in participating or learning more about the plan, said Paul Merski, chief economist for the group representing smaller banks.

Government officials are working to modify the plan to allow all banks to participate, the bank lobbyists said. For instance, the roughly 2,500 S-corporation banks in the U.S. can't offer preferred stock so they are locked out under the original terms.

Those that do sign up can't keep the money in-house, Paulson said. One of the main problems in the weakening economy is that banks are afraid to lend.

"Our purpose is to increase confidence in our banks, so that they will deploy, not hoard, their capital," Paulson said. "And we expect them to do so, as increased confidence will lead to increased lending. This increased lending will benefit the U.S. economy and the American people."

Participating banks aren't likely to hold onto the funds since they are paying a 5% dividend on it, Merski said. They'll need to put it to use to cover that cost.

"Banks will have every intention to use this money to lend because that's how they make profits," Merski said. "Banks aren't going to take it and let it sit on their books."

-- CNN Senior Producer Scott Spoerry contributed to this report. 


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Accountants named for rescue program

WASHINGTON (AP) -- The government has selected two major accounting firms to help it manage the $700 billion rescue program for the financial system.

The Treasury Department said Tuesday it had chosen PricewaterhouseCoopers to be the auditor for the program. Ernst & Young will provide general accounting support.

The two firms will work on the part of the rescue program that handles the purchase of troubled assets from banks as a way of encouraging them to resume more normal lending. 


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Bush 'open' to stimulus

WASHINGTON (CNN) -- President Bush hinted Monday he would be willing to consider a second stimulus package, hours after America's top banker suggested one might be necessary.

Federal Reserve Chairman Ben Bernanke told Congress Monday it would be "appropriate" for lawmakers to consider "a fiscal package."

White House spokeswoman Dana Perino said soon afterward that Bush is "open to ideas ... that would stimulate the economy."

The Bush administration has been resisting Democratic proposals for a second round of checks from the government to taxpayers, but Perino said the objections were to specific elements of the proposed programs.

"Several programs that have been recommended ... are coming in a cloak of being stimulative, and we don't think that those would actually stimulate the economy."

Bush met business leaders in Louisiana on Monday, and a reporter asked him afterward if he "supported the second stimulus package that Chairman Bernanke proposed today."

"Listen to Dana's quotes," the president responded.

Minutes earlier, he had said taxpayers could expect a return on the enormous sums of money the government is planning to pump into banks to ease a credit crisis.

"I can say this with confidence to the people out here, that I think we're going to get - be able to get most of your money back. And the reason I say that is because the government is really making investments."

He said many people were wondering "why a free-market-oriented president" was putting government money into buying shares in private-sector banks.

He said the magnitude of the crisis had forced his hand.

"The crisis that is gripping this country, and still has a grip on this country, affects the people around this table," he said.

Stocks surged Monday, pushing the Dow to close above the 9,200 level, as investors welcomed the talk of a second economic stimulus plan and an improvement in key lending rates.

CNN White House correspondent Elaine Quijano contributed to this report.  


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