Washington's influence grows on Wall Street

Top executives from the nation's nine biggest financial companies apparently had no option when Treasury Secretary Henry Paulson unveiled a plan to partly nationalize the banking system. And on Tuesday, the CEOs offered no words of confidence about the plan or dispatched any memos to the bankers and traders working for them about how a once freewheeling industry is set to change.

The ownership stakes are expected to bring greater government scrutiny in the effort to stabilize the financial system. Banks have also been forced to accept limits on executive pay, scale back bonuses paid to senior executives, cut so-called golden parachute payments, and adhere to restrictions placed on raising stock dividends.

But just how much this will change the balance of power in the banking industry is an open question.

The Bush administration's latest prescription for the ailing financial industry calls for spending $250 billion on equity stakes in the nation's banks in an effort to stimulate interbank lending and revive the stagnant credit markets. That's part of a $700 billion package meant to rescue the financial system, with the majority of the money being spent to buy troubled mortgage-backed investments off banks' balance sheets.

Some analysts saw the government's latest intervention as necessary to help restore confidence in the market and stave off a prolonged recession.

"This looks to be a very well targeted bullet fired at the worst of the U.S. financial system," said Avery Shenfeld, senior economist at CIBC World Markets. "It's not a cure-all for the U.S. economy, it's a step toward making the recession milder and shorter rather than deep and protracted."

Others are worried that the plan could impede how big banks do business. It could force bankers to leave Wall Street for unencumbered businesses like hedge funds or private equity shops, leaving traditional investment banks at a disadvantage.

There is also the question of whether banks that receive government money will go back to their more freewheeling ways. Or whether such banks will have an advantage--or perhaps even a disadvantage--over those that don't participate.

The one thing analysts, policymakers and bankers alike seem to agree on is that it will take time to figure out exactly how the plan will change the industry.