It looks like the Second National Bank of Akron is going to want a bailout that looks like the one the Citigroup (NYSE:C) got. Under the Paulson $700 billion aid program, the small financial firm may get it.
According to The Wall Street Journal, "Treasury and banking regulators say as many as 1,800 publicly held institutions could apply for government investments."
While all of the little financial firms may qualify, it uncovers a significant flaw in the Treasury's plan. If hundreds of banks get money and the government ends up owning a piece of each of them, who keeps track of their progress and how they us the capital? The answer is probably "no one". Following all of the money is a bureaucratic nightmare.
It is a democratic (as opposed to Democratic) kind of thing to help the small with the large, but does it make sense? Smaller banks often did not have investments in mortgaged-backed paper and probably do not have tons of toxic assets. Their troubles are part of the normal issues that hit banks in a recession. Do local customers have the money to pay them?
The government should let most banks be part of the consolidation which goes on in bad times. If they fail, the FDIC will find them homes, or they can be bought by their larger brethren.
Douglas A. McIntyre is an editor at 24/7 Wall St.
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