The Treasury Department is in talks with GMAC Financial Services Inc about a possible third cash infusion to the company, an Obama administration official confirmed on Tuesday night.
The official declined to say how much additional money was under discussion for GMAC, which already has received $12.5 billion of taxpayer funds. The Wall Street Journal said the government may have to inject another $2.8 billion to $5.6 billion into the Detroit-based lender.
GMAC is the traditional lender to General Motors Co. dealers and customers and is taking over the auto loan business of Chrysler.
With the U.S. auto industry still struggling as key companies like GM come out of bankruptcy, the administration has shown signs of willingness to step in to help them try to get back to stability.
GMAC was one of 19 banks that underwent government stress tests earlier this year. The tests aimed to assess whether banks would need more capital if a downturn continued through 2010. Ten of the banks, including GMAC, were found to need capital immediately but others were able to raise it on their own.
GMAC is the only one of the banks that went through the stress test to need additional government capital, Treasury spokesman Andrew Williams said Tuesday night. All other institutions were able to raise any necessary capital from investors and several of these firms have already paid back the taxpayer.
Many smaller banks are under pressure, however, and policymakers are concerned that bank failures will continue increasing as commercial real estate loans, in particular, keep going sour.
The stress test results issued in May showed that GMAC needed to raise $11.5 billion of new capital and it was widely speculated at the time that because it had few obvious ways to raise money it on its own, GMAC might have to come back to the government.
GMAC became a bank holding company after its parent, General Motors, declared bankruptcy and went into reorganization.
GMAC provides much of the financing that GM dealers across the country rely on to purchase the cars they sell, which means that if GMAC failed they would be unable to put cars on their lots.
Administration officials said when major banks were undergoing stress tests that some might need additional funds from the $700 billion Troubled Asset Relief Program, or TARP, given the severity of the economic downturn.
(Reporting by Glenn Somerville; Editing by Kazunori Takada)