Pittsburgh and Cleveland, two bitter Rust Belt rivals on the football field, have become the proving ground for the federal government's controversial $700 billion bid to staunch a credit crisis that has spilled over from Wall Street to Grant Street and Euclid Avenue.

Analysts say the $7.7 billion in federal support Pittsburgh-based PNC Financial Services Group received to acquire Cleveland's troubled National City Corp. is the first of what is expected to be dozens of government-financed acquisitions of weak banks by strong ones. The infusions are intended to restore confidence in the banking system and credit markets.

In short, Treasury Secretary Henry M. Paulson Jr. and other regulators are picking winners and losers, not only among banks but also among stakeholders.

"The Fed will not let any bank fail," said Greg Melvin of C.S. McKee, a Pittsburgh investment manager. "They don't care about shareholders, but no debt holder or depositor is going to get nicked in the next three months."

That is how the regulatory script reads for PNC's $5.6 billion acquisition of National City, announced Friday. And Mr. Melvin, a director at FNB Corp., a Hermitage, Pa. bank, expects more to follow.

"What the Fed is telling us is that you can use this money for acquisitions," he said. "They'll give you extra capital if you take a bad bank."

PNC, which earlier this decade fell under a regulatory cloud over inflated profits from a transaction involving American International Group, is the winner, and National City, done in by brokers who arranged toxic mortgages and untimely acquisitions, is the loser.

Making Mr. Paulson the arbiter of which banks survive isn't what some members of Congress had in mind when they voted on the emergency legislation.

"Without regard to the economic and psychological impact on our community, Treasury made a coldly calculated decision to push National City off the cliff and use our tax dollars to help another bank scrape up the remains," said U.S. Rep. Dennis Kucinich, a Cleveland Democrat who voted against the bailout.

U.S. Rep. Steve LaTourette, R-Cleveland, said Congress should have given Mr. Paulson and other regulators a blueprint on how to use the $700 billion instead of letting the Treasury secretary "play God."

"He has picked winners and losers," Mr. LaTourette said. The first winner he picked was Goldman Sachs, where he came from. ... The chickens have come home to roost in Cleveland in a horrible way."

Among the winners are National City's depositors, who won't have to worry about whether their money is safe. Neither will investors who own National City bonds, which had been selling at bargain basement prices that reflected the risks facing the bank. PNC is assuming the bonds, reassurance that sent National City bond prices higher in trading Friday.

The same can't be said for National City's shareholders. The transaction values National City shares at $2.23 per share, 19 percent less than the stock's closing price Thursday.

In the past, National City's depositors would have been bailed out by the Federal Deposit Insurance Corp., the federal agency created in the Great Depression to guarantee the safety of bank deposits. That agency has been under siege because of the demise of Washington Mutual and other banks and increases in the maximum amount of deposits the government will guarantee.

"What you're seeing is the Treasury taking over the role of the FDIC with a lot more bullets," said University of Maryland economist Peter Morici.

Dr. Morici faulted Mr. Paulson and Federal Reserve Chairman Ben S. Bernanke for not taking tough enough action with Citigroup and other large money center banks. Their failure has dried up credit normally available to regional banks like PNC, something the Treasury is trying to rectify, Dr. Morici said.

"Now the regional banks are on the ropes," he said. "That is why we had panic in the markets last week, because credit hasn't opened up."

Cleveland's economy is suffering because National City and other banks have restricted credit, said Raj Aggarwal, dean of the University of Akron's business school. He was stunned by the number of businesses who said they couldn't get credit.

"To me, that's exactly the kind of thing we don't want, as a nation and as a banking system," Mr. Aggarwal said.

The Treasury is purchasing $7.7 billion in PNC preferred stock. The infusion, which comes from the Troubled Asset Relief Program approved by Congress, bolsters PNC's balance sheet and increases its ability to provide credit, a scarce commodity needed to reinvigorate the economy.

Making the U.S. Treasury a major shareholder in PNC and other banks may not be what members of Congress thought they were voting for, but the strategy has the approval of Carnegie Mellon University professor Allan H. Meltzer, a former consultant to the U.S. Treasury and Federal Reserve Board.

"The strong banks are acquiring the weak banks and that's the way it should work," Dr. Meltzer said. "This is a market solution. It just happens to be helped along with government money."

Walker Todd, a former general counsel at the Federal Reserve Bank of Cleveland, agreed.

"Marrying a weak bank with a strong one through government capital injection, that's not half bad," said Mr. Todd. "We haven't seen a deal like this done since the 1930s."

Mr. Todd believes more will follow because part of the solution to the credit crisis is shrinking the number of banks, currently at about 12,000.

"If the government plays the game fair and does not give undue competitive advantage to those getting the money, it's reasonable to expect 5,000 to 6,000 banks will survive without much damage," he said.

Dr. Meltzer, a staunch free market advocate, initially opposed the emergency legislation. "The market people caused this problem. They ought to be the ones that pay the cost of having it cleaned up," he said in a Public Broadcasting System interview last month.

"It would be a better idea if the banks were told that if they needed $7 billion in capital that they should have to raise half of it in the market. Then we would get a better reading of who is strong," he said yesterday.

U.S. Rep. Jason Altmire, D-McCandless, voted against the bailout package and also wondered whether private money could have saved National City. Still, he expects other troubled banks to be rescued the same way.

"This isn't the only part of that $700 billion that will be used in that way," Mr. Altmire said. "It would seem on face value that National City was in imminent danger of not being able to continue."

Dr. Meltzer and others are concerned that too much government intervention will lead to the kind of regulations that contributed to the crisis. Last week, Sen. Charles Schumer, D.-N.Y., questioned whether banks that receive a piece of the $700 billion pie should be paying out dividends.

"There are far better uses of taxpayer dollars," he said.

PNC Chairman and Chief Executive Officer James E. Rohr told analysts that while it's difficult to predict what Congress might do given the magnitude of the problems, "we kind of like paying dividends."

"I would find that to be quite alarming, that high quality performing banks would be required to amend their dividend policy," Mr. Rohr said.

Some believe the U.S. Treasury will invest in banks that aren't large enough to swallow their troubled competitors, giving them the capital to acquire branches of ailing banks purchased by PNC and others.

"One way or another, the federal government is going to have to put in the money to do that," Dr. Morici said.

Analysts said PNC will have to sell some National City branches in order to alleviate concerns that its dominance of markets such as Western Pennsylvania will reduce competition.

Once it acquires National City by yearend, PNC will control nearly 53 percent of the bank deposits in the Pittsburgh region. according to Bart Narter of Celent, a Boston financial research and consulting firm. Mr. Narter said possible buyers of those branches include Citizens Bank, which acquired Mellon Bank's retail operations in 2001, and Sovereign Bancorp, a Philadelphia bank acquired by Spain's Banco Santander earlier this month.

There are also concerns about how the turmoil in the banking industry will play out in Cleveland. Losing National City is another blow to civic pride, but more traumatic changes could be in the offing, said Jeff Davis of Wolf River Capital in Nashville, Tenn.

"There's not a divine right to having a major bank headquarters in your city. For now, [Cleveland's] got KeyCorp. You may not always have that," Mr. Davis said.

The town has two other major banks, Cincinnati-based Fifth Third Bancorp., and Columbus-based Huntington Bancshares. Mr. Melvin said he expects Key and Fifth Third, which also has branches in Pittsburgh, could be the next to go. Fifth Third's stock tumbled 34 percent last week while Key shares ended the week with a small gain.

Probable buyers include US Bancorp, the Minneapolis bank that reportedly passed on National City, and Canada's Bank of Nova Scotia and Montreal, Mr. Melvin said.

"I think what you have here is a blueprint for Key and Fifth Third to go," he said.

Mr. Davis believes within the next three years, two of Cleveland's three major banks will merge and the other one will be acquired by an out-of-state competitor. US Bancorp and Key "is an extremely good fit," he said.