U.S. Government to Invest $250B in Banks, Reveals Additional Plans
The U.S. government has announced a $250 billion plan to purchase stakes in a wide variety of banks in an effort to restore confidence in the sector.
President George W. Bush said the move would help to return stability to the U.S. banking sector and ultimately help preserve free markets.
U.S. federal authorities will also temporarily insure most new debt issued by U.S. banks.
The moves echo similar steps taken by the UK and other European countries.
"This is an essential short-term measure to ensure the viability of America's banking system," Mr. Bush said. "This is not intended to take over the free market, but to preserve it."
Mr. Bush also said that the Federal Reserve would finalize work on a new program that would make it the buyer of last resort for companies' short-term debt, known as commercial paper.
Furthermore, government deposit insurance is being expanded to cover accounts used by small businesses.
The money will come from the $700 billion bail-out package approved by U.S. lawmakers earlier this month.
The U.S. plan - effectively part-nationalization - comes after the bosses of the country's largest banks were summoned to a special meeting at the US Treasury on Monday.
Treasury Secretary Henry Paulson said that the lack of confidence in the financial system was a threat to the U.S .economy.
He said that taking equity stakes in banks "was objectionable to most Americans, including myself".
"We regret taking these actions," Mr. Paulson said.
"But we must do this to restore confidence in the financial system."
Mr Paulson said the government would buy stakes in a "wide variety" of banks and thrifts - financial institutions similar to building societies in the UK.
Nine banks, which Mr. Paulson described as "healthy institutions", have so far signed up to the deal.
Federal Reserve chairman Ben Bernanke said that the U.S. strategy would evolve and adapt to new developments:
"We will not stand down until we have achieved our goals of repairing and reforming our financial system," he said.
Published on October 14, 2008
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