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MADELEINE BRAND, host:

Back now with Day to Day. I'm Madeleine Brand. The markets are reacting to the $700 billion bailout package. And meanwhile, the credit crisis appears to be spreading further. Lending is still tight and the banking landscape has another crater in that parts of Wachovia will be swallowed up by Citigroup. Marketplace's Janet Babin is here now. And Janet, what is the Federal Reserve doing about the strain on the system on the credit crunch?

JANET BABIN: Right. The Fed this morning, Madeleine, announced that it and the foreign central banks are going to pump billions more dollars into the system to try to ease this tight credit situation. The hope is that banks will feel better about making the short-term loans, the commercial paper and things like that that make business go around. Specifically, the Fed will up the amount of 84-day cash loans the banks can get, and it'll make more 28-day loans available, too.

BRAND: OK, let's get to that Wachovia deal. Tell us about that.

BABIN: Well, Wachovia, as you probably know and people have heard, has been in trouble because of these adjustable rate mortgages it has on its books, its toxic debt, and it was looking for a way out. And under this deal, it would be able to sell its retail and investment bank and its wealth management business to Citigroup. And Citigroup would pay Wachovia more than $2 billion for that and it would assume some $52 billion of its debt. But the FDIC, the Federal Deposit Insurance Corporation, would cover any remaining losses. And then Citigroup, in return, would issue $12 billion in preferred stock to the FDIC.

BRAND: So, what does this all mean for Wachovia customers?

BABIN: Well, as customers and I'm one of them, people with accounts are protected. All deposit are ensured up to $100,000.

BRAND: And shareholders?

BABIN: Yeah, shareholders - things get a bit dicier for them. It looks like they might get some value from their stocks. That's not clear yet. It's still being worked out or being announced. Bill Brown is a visiting professor at Duke Law School. He spoke to him about this today. And Brown says Wachovia shareholders, one way or another, are going to feel the pain, and one of those shareholders is his father.

Professor BILL BROWN (Duke Law School): I just say 'dad, you got to lick your wounds, you got to redeploy your capital in ways that really reflect the risk that you want to have going forward.'

BABIN: And on the upside, Brown says investors like his dad will be able to find tremendous bargains to invest in this climate.

BRAND: Well, tell us about some concerns about this Wachovia deal.

BABIN: Well, if it does go through when it is expected to, that would leave three big banks - Bank of America, JPMorgan Chase and Citigroup with more than 30 percent of U.S. deposits. North Carolina Commissioner of Banks Joe Smith says that concentration is troubling for customers and small banks.

Mr. JOSEPH SMITH (Commissioner of Banks, North Carolina): The concern I have right now is that big dogs don't take up all the capital and all the liquidity in the market and leave the banks that didn't do any of the stuff that caused this mess short of those commodities, because that to me can hurt our real economy.

BABIN: Smith point out there are more than 8,000 banks in the country and the vast majority of them remain solid.

BRAND: Thank you, Janet. That's Janet Babin of public radio's daily business show, Marketplace.

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