A TARP In The Trillions?

How much to bail out the banks now? $3.5 trillion by one estimate.

A federal program to guarantee or buy bad assets from the ailing U.S. bank sector could come with a $3.5 trillion price tag.

That would push the accumulated costs of rescuing the financial markets over the last year through various federal loan, stock purchase, debt guarantee and other programs close to $9 trillion and counting, with practically no end in sight for the bad news battering the banking industry.

That figure doesn't count the $825 billion economic stimulus plan also under consideration.

"We expect massive federal intervention into the financial sector from the new administration in the coming months," says Keefe Bruyette & Woods (nyse: KBW - news - people ) analyst Frederick Cannon, who calculated the $3.5 trillion figure, which is one-quarter of the banking sector's $14 trillion in combined assets.

So far, more than 200 banks have gotten $191 billion in relief from the $700 billion Troubled Asset Relief Program, according to Keefe Bruyette. About $90 billion of it went to just two banks, Citigroup (nyse: C - news - people ) and Bank of America (nyse: BAC - news - people ).

Just before leaving office, the Bush administration asked Congress to release the remaining $350 billion authorized under the TARP plan, which passed in October.

The new Obama administration will certainly use that money--and ask for more. "The ultimate costs of this crisis will be greater if we do not act with sufficient strength now," said Treasury nominee Timothy Geithner in his Senate confirmation hearing Wednesday. "In a crisis of this magnitude, the most prudent course is the most forceful course."

Geithner, the president of the Federal Reserve Bank of New York who has been in the crucible as the financial crisis erupted over the last year, told the Senators that the TARP needed "serious reform."

The new idea: A federal plan to buy up bank assets, relieving bank balance sheets of the need to constantly adjust deteriorating market values, could come in the form of an "aggregator" bank or other type of bad bank structure--a throwback to the 1980s real estate lending crisis--that would buy assets from banks.

This was former Treasury Secretary Henry Paulson's original vision for the TARP fund, but he switched course and decided to devote $250 billion to direct equity stake investments in banks before waffling again and heading back in the direction of asset purchases.

In November, and again last week, the Treasury agreed to guarantee more than $400 billion of assets at Citigroup and Bank of America.

The availability of federal bank bailout funds attracted other industries, including the automakers, who managed to get $17 billion under the program, and American International Group (nyse: AIG - news - people ), an insurer, which got $40 billion.

Regulators have been trying to calm panicked markets by emphasizing that most banks (98% of the industry according to Federal Deposit Insurance Corp. Chairman Sheila Bair) are well-capitalized.

That doesn't mean they don't need to raise more capital, however, a fact that just about every bank stock analyst has dwelled on in the last few months.

"There is a fear factor," Bair acknowledged in a television interview Wednesday. People don't know how bad the economy is going to get, what the outer limit on these losses could be."

A federal "bad bank" could warehouse billions in deteriorating assets and relieve banks of the need to continually shore up capital. It would come at a steep price to shareholders, however, potentially wiping them out.

But free from the burden on their balance sheets, banks could revive lending, regulators say, and get the economy humming again.