Jan. 15--NEW HAVEN -- Southern Connecticut Bancorp Inc., the holding company for The Bank of Southern Connecticut, has received preliminary approval of its application to participate in a program the U.S. Department of the Treasury is running to help strengthen banks.

Under the Emergency Economic Stabilization Act passed last year by Congress, the Treasury Department launched three initiatives as part of its controversial Troubled Asset Relief Program: the Troubled Asset Auction Program, the Capital Purchase Program and its Programs for Systemically Significant Failing Institutions.

All three carry restrictions on executive compensation that generally apply to the chief executive officer, chief financial officer and the three most highly compensated executive officers.

John H. Howland, president and chief operating officer of The Bank of Southern Connecticut, said the bank has preliminary approval for the Capital Purchase Program, through which the Treasury is providing infusions of equity capital to certain financial institutions to bolster continued lending.

The institution would be able to issue up to about $3.2 million of preferred stock and warrants that could be converted into a certain amount of company common stock.

The nonvoting senior preferred shares to be issued to the Treasury will pay a dividend of 5 percent annually for the first five years after issuance and 9 percent annually thereafter, if they are not redeemed.

Participation is voluntary for healthy banks and Howland said The Bank of Southern Connecticut is well capitalized.

"While we are pleased to be in the position to obtain this capital through the Capital Purchase Program, we are still assessing whether it is in the best interest of our shareholders," he said in a statement.

Another Connecticut bank, Webster Financial Corp., has approval to participate, and closed on a transaction with the Treasury that allows Webster to issue up to $400 million in senior preferred shares and provide warrants for up to an additional $60 million in common stock to the Treasury.

Webster also said it is well capitalized and will make credit available to consumers and businesses.

Other Connecticut institutions approved for the Capital Purchase Program are the First Litchfield Financial Corp. in Litchfield and The Connecticut Bank and Trust Co. in Hartford.

The TARP program is under fire because the Treasury Department cannot provide a full accounting for the uses of $350 billion released to date.

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