The Treasury Department will start buying equity stakes in banks this week as part of its $250 billion rescue plan.

According to reports, Treasury Secretary David Nason said deals with nine major banks were inked late Sunday and the government will start buying $125 billion of the banks’ equity during the week.

The equity purchases are designed to provide banks with more liquidity so that they can resume lending and is also expected to prompt a wave of consolidation in the banking industry.

In addition to the nine banks, the Treasury started approving investments in major regional banks. The equity purchases marks the first move by the Treasury since getting approval for a massive $700 billion rescue of the financial markets earlier this month. According to report, the rescue could be extended to other industries including auto, insurance and foreign controlled banks.

This past Friday, PNC Financial Services (PNC) was the first to announced it was buying National City (NCC) with money it’s in line to get from selling stock and warrants to the government. PNC is expected to get USD 7.7bn. Deals like PNC’s acquisition of National City is likely to be the first of many.

Meanwhile KeyCorp (KEY) on Monday said it will get $2.5bn from the government from selling stock, while Capital One Financial (COF) said it will get $3.55 billion and SunTrust (STI) will get $3.5 billion. Other firms announcing participation include, Northern Trust (NTRS) at $1.5 billion and Huntington Bancshares (HBAN) at $1.4 billion. Other banks include First Horizon (FHN), Regions Financial (RF), Valley National (VLY), Washington Federal (WFSL), City National (CYN), First Niagara (FNFG), Provident Bancorp (PBKS) and United Commercial.

With consolidation expected to ensue, smaller community banks are starting to complain that financially sound banks could get swept up in the acquisition frenzy. The Wall Street Journal reported in Monday’s edition that small banks plan to lobby Capitol Hill to make sure their protected from taxpayer subsidized consolidation.