Feds set to refill banks’ coffers

WASHINGTON — The government prepared Monday to move the first batch of bailout money to banks as fretful world markets plunged again. Wall Street ended with a big drop at the closing bell, sending the Dow Jones industrials to their lowest close since the financial meltdown began.

The Treasury Department said it would start moving $125 billion to nine major banks this week by buying ownership stakes, the first big transfer since the $700 billion bailout package was passed early this month.

Assistant Treasury Secretary David Nason said the infusion would go to the largest banks in the nation, including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo.

A group of smaller but significant regional banks, including Capital One Financial and SunTrust Banks, began announcing their own preliminary deals with Treasury for another $125 billion. That money should be released as soon as paperwork is finished.

The Fed also began a major program to buy up the short-term debt, known as commercial paper, that businesses use to pay for everyday expenses and salaries. Lending, the lifeblood of the economy, froze up after the collapse of investment house Lehman Brothers in mid-September and has thawed agonizingly slowly since.

On Wall Street, buying and selling that was halfhearted by the standards of the past month had major averages drifting higher and lower throughout the day. Then stocks plunged in the final 10 minutes of trading.

The Dow Jones industrials finished the day down 203 points, or 2.4 percent, closing at the 8,176 level — their lowest close of the year. Remarkably, it was the 28th time in the 31 trading sessions since the financial meltdown began that the Dow has moved triple digits for the day.

But the carnage was worse elsewhere on another day when investors worried about a looming worldwide recession. Major stock markets in Hong Kong, Tokyo, Britain, France and Germany dropped sharply earlier in the day. Tokyo’s Nikkei 225 index closed at its lowest level in 26 years.

The Fed was expected to make an even more dramatic move later this week by cutting interest rates, perhaps lowering the key federal funds rate by as much as a half-point, driving the federal funds rate down to 1 percent.

The question is whether all the efforts, including billions of dollars of loans to banks by the Fed and other central banks around the world, will be enough to get lending going again.

So far, it hasn’t helped much. A closely watched measure that tracks what banks charge each other for loans edged down marginally on Monday, suggesting credit is a bit looser than a few weeks ago but remains tight.

“All these efforts are doing some good, but the question is whether they will do enough,” said David Wyss, chief economist for Standard &Poor’s in New York. “The credit markets are still pretty locked up.”