By Jonathan Stempel

The infusions are part of the second phase of a $250 billion recapitalization program launched this month by U.S. Treasury Secretary Henry Paulson.

Governments worldwide are trying to prop up banks whose capital has been hit by the credit crisis as part of efforts to stave off a potentially deep global economic recession.

Treasury is providing funds, in exchange for preferred stock and warrants, to a group of 20 to 22 lenders. In an earlier round of financing, the department committed $125 billion to nine of the nation's largest banks. The infusions are part of the $700 billion Troubled Asset Relief Program (TARP) that became law this month.

"Investors should look at the infusions as a positive for those that participate," said Kevin Fitzsimmons, a banking analyst at Sandler O'Neill & Partners LP. "Over the next week, we may get a better idea of who is getting approved and who may not be. Perhaps there will be more scrutiny then of lenders we haven't yet heard from."

Another industry expert said "hundreds" of small U.S. banks could receive fresh capital under the program.

Camden Fine, president of the Washington-based Independent Community Bankers of America, said small banks that receive capital would use it for Main Street lending. "Unlike the largest banks, which many times have many other sources of income, community banks are heavily dependent on lending activities for their income. So the bulk of this money going to the community banks is going to be used for lending," he said.

The government hopes banks will use funds to help unlock credit markets, rather than hoard the cash, though some are expected to use money to buy weakened rivals.

On Friday, PNC Financial Services Group Inc said it would buy National City Corp , the ailing Cleveland lender, with help from a $7.7 billion government infusion.

U.S. Rep. Barney Frank, the influential chairman of the House of Representatives Financial Services Committee, said he expects banks to lend the money they receive under the capital infusion program.

"If that doesn't happen, we will find a way to put pressure on them," Frank, a Massachusetts Democrat, said at a Boston chamber of commerce meeting.

One bank receiving government funds, Los Angeles-based City National , said it was self-evident that banks are going to put the money to work even though there was no "specific written agreement" with the government requiring it. "City National ... is in the business of lending money," Chief Executive Russell Goldsmith told CNBC television.

The Treasury Department is letting banks announce infusions, rather than release a list and frighten investors that banks left off the list failed to qualify for help.

HARD TO SEPARATE WINNERS/LOSERS

Bank shares initially rose on Monday, with the Standard & Poor's Financials Index <.GSPF> up almost 1 percent in afternoon trading before reversing gains and falling 4.1 percent by the close.

Among the gainers were First Horizon National Corp , and Regions Financial Corp , who are among the 16. Their shares had faced downward pressure in part on speculation they might not be eligible for federal funds.

"It's getting harder to separate the winners from the losers," said Terry McEvoy, a regional bank analyst at Oppenheimer & Co. "When you see First Horizon, KeyCorp and Regions shares on Friday all trading below tangible book value, new capital from the Treasury may erase some market fears, because it puts these banks on the 'winners list.'"

In announcing its $3.5 billion infusion, SunTrust also cut its quarterly dividend by 30 percent to 54 cents per share, four months after saying it planned to maintain its payout.

"Reducing the dividend is the responsible thing to do, given recent deterioration in the economy, the prospect of continued weakness in 2009, and the implications of this on the near-term outlook," Chief Executive James Wells said.

Under the program, Treasury will receive preferred shares that carry a 5 percent annual dividend for five years, and 9 percent thereafter.

Participating banks have agreed to restrictions on executive pay, including golden parachutes.

Others announcing infusions on Monday were City National Corp , Comerica Inc , First Niagara Financial Group Inc , Huntington Bancshares Inc , Northern Trust Corp , State Street Corp , UCBH Holdings Inc and Provident Bankshares .

Prior to Monday, First Horizon National Corp , PNC, Regions, Valley National Bancorp and Washington Federal Inc said they would receive government money. Fifth Third Bancorp said it would apply for $3.4 billion.

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(Additional reporting by Elinor Comlay in New York, Svea Herbst-Bayliss in Boston and Rachelle Younglai in Washington)

(Editing by John Wallace, Jeffrey Benkoe and Matthew Lewis)