Auctions for Injecting Bank Capital (Addendum to 'A Troubled Asset Reverse Auction')

Peter Cramton, University of Maryland
Lawrence M. Ausubel, University of Maryland

Abstract

Public discussion has turned, in the past few days, toward using some of the $700 billion in rescue funds for the injection of government money into banks in return for ownership stakes. The purpose of this short note, an addendum to “A Troubled Asset Reverse Auction,” is to describe an auction mechanism suitable for injections of capital into banks. The auctions would price the equity purchases through a competitive process.