The US government will spend up to $250 billion to buy shares in struggling banks in the latest effort to stem a global financial crisis, Treasury Secretary Henry Paulson said today.
Nine of the largest US banks agreed to give the government equity stakes in exchange for capital under a rescue plan, including Citigroup, JPMorgan Chase and Bank of America, a Treasury official said today.
The other major banks in the programme include Goldman Sachs, Morgan Stanley, Wells Fargo, Bank of New York Mellon, State Street and Merrill Lynch, soon to be taken over by Bank of America, the official said.
These nine will get $125 billion of the $250 billion to be invested by the government in the banks as part of a massive rescue of the financial system.
The US government also will temporarily guarantee unsecured debt and interbank lending and offer unlimited deposit insurance for many accounts as part of a global effort to stem a credit crunch.
The efforts are part of a $700 billion emergency rescue package approved last month by Congress in the face of a widening global crisis. The moves come following a weekend pledge by the Group of Seven economic powers to use all available tools to keep financial markets functions and save key financial institutions.
'Today we are taking decisive actions to protect the US economy,' Paulson said. 'We regret having to take these actions. Today's actions are not what we ever wanted to do - but today's actions are what we must do to restore confidence to our financial system.'
'Government owning a stake in any private US company is objectionable to most Americans - me included. Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable,' the Treasury Secretary said.
'When financing isn't available, consumers and businesses shrink their spending, which leads to businesses cutting jobs and even closing up shop,' he explained.
US President George W Bush said the moves were essential short-term measures to ensure the viability of America's banking system.
He insisted the government's steps would be limited and temporary. 'It will take time for our efforts to have their full impact, but the American people can have confidence about our long-term economic future,' he said.
