The US Treasury is to invest $250bn in a number of banks as part of a package of measures aimed at restoring confidence in its financial sector.
Following the lead of some European governments, the US Treasury will also guarantee all bank deposits and new debt issues by banks for a period of three years.
A long meeting between top bankers and US Treasury officials in Washington ended last night with agreement to inject $250bn directly into the financial system.
The capital is to come from the US $700bn rescue package.
At least $125bn is to go to nine of America's largest banks, including Citigroup, JPMorgan Chase and Bank of America, in exchange for capital under the rescue plan.
Not all banks will be covered and it is unclear what strings may be attached.
The treasury will receive preference shares which pay a dividend but will not dilute the ownership of current shareholders.
A blanket guarantee on all deposits will also be given and an additional guarantee on new debt issued by banks will be put in place for a period of three years.
US President George W Bush said the move, which echoes similar steps taken by Britain and European countries, would ultimately help to preserve free markets.
Treasury Secretary Henry Paulson said it was a necessary decision to restore confidence in the financial system.
