This article is more than 11 years old

This article is more than 11 years old

America's smaller banks are claiming they could be vulnerable to government-funded predatory takeovers as their larger rivals enjoy huge cash injections from a $250bn (£157bn) Treasury bail-out.

The list of US banks signing up for government capital swelled to at least 19 today as middle-ranking names including State Street, Capital One and SunTrust announced they were issuing shares to the Treasury in return for about $17bn.

But critics have questioned whether the funds will be put to good use. Lending remains sparse on the high street and there are fears that the recipients will simply hoard the money — or use it to buy smaller players.

Camden Fine, the chief executive of the Independent Community Bankers of America, said it was unfortunate that the US treasury had imposed few conditions on the way the money was used, other than a stipulation that dividend payouts to shareholders must not rise.

"When you have taxpayers' money used by larger banks to purchase otherwise healthy banks, that just promotes the kind of consolidation that got us into this mess in the first place," said Fine.

"These taxpayer funds are intended to unfreeze the credit markets and to open up local economies — not to help investors in one bank buy out investors in another."

The latest group of recipients for handouts includes regional players such as First Niagara Financial in upstate New York, Ohio-based Huntington Bancshares and Chicago's Northern Trust.

They join the nine top banks originally named by the treasury as targets for the recapitalisation programme such as Citigroup, Goldman Sachs, Morgan Stanley and Bank of America.

A Californian lender, City National Bank of Beverly Hills, made it clear it would consider using its $395m capital infusion to make purchases. Its chief executive, Russell Goldsmith, told the Los Angeles Times the money "clearly enhances our financial capacity to make acquisitions and to lend to a larger degree".

The pace of deals in the banking industry has already picked up. On Friday, Cleveland-based National City Bank agreed to a $5.6bn buyout by a competitor, PNC, which is getting $7.7bn from the Treasury.

Keith Horowitz, a banking analyst at Citigroup, said National City did not need capital but had found itself vulnerable as a result of the bail-out.

"We believe [the bail-out] in a perverse way pushed/forced National City's management to sell the bank into a buyers' market," said Horowitz in a note to clients.

Banking shares surged on Wall Street today as the government injections began to kick in. There is speculation that aid could be broadened to troubled insurers and even to struggling carmakers such as Ford and General Motors.

The assistant US treasury secretary, David Nason, hinted that wider handouts were possible.

"We started with the banks because that's targeted with providing more credit to the economy," he said Nason.

"There are a lot of industries coming in saying they need federal assistance so we're willing to listen."