US Treasury Secretary Timothy Geithner has announced a three-part program to stabilise the US financial system including an initial fund of $500bn to absorb toxic assets.

Mr Geithner said the plan would ‘bring the full force of the United States government to bear to strengthen our financial system so that we get the economy back on track.’

This will serve the role of an aggregator bank, or ‘bad bank’ to help financial institutions value their mortgage securities and clean up their balance sheets.

‘While banks will be encouraged to access private markets to raise any additional capital needed to establish this buffer, a financial institution that has undergone a comprehensive 'stress test' will have access to a Treasury-provided 'capital buffer' to help absorb losses and serve as a bridge to receiving increased private capital,’ the Treasury said.

A key element will be a public-private investment fund started with $500bn ‘with the potential to expand up to $1 trillion’ to help cleanse the banking system of toxic real-estate assets.

The Federal Reserve would pump up the amount to $1 trillion from the previously announced $800bn in its Term Asset-Backed Securities Loan Facility.

This will accept mortgage-backed securities and securities backed by auto loans, credit card loans, student loans, and some small business loans.

Bush Administration blamed by Obama

Meanwhile, US President Barack Obama has insisted that only the federal government can lift the US economy out of deep recession.

Mr Obama used his first televised White House news conference to exhort Congress to act in the coming week on the $800bn economic stimulus package.

With the US Senate expected to vote on the issue today, he warned that economic crisis could turn into catastrophe unless the recovery bill is passed without further delay.

‘I want to thank the members of Congress who have worked so hard to move this plan forward,’ President Obama said.

‘But I also want to urge all members of Congress to act without delay in the coming week to resolve their differences and pass this plan.’

The president pointedly blamed the Bush administration for leaving him with a budget deficit forecast to hit more than $1 trillion.

However, he said that the figure should not halt the vast spending he believes is needed to kick-start the crippled economy.

‘Doing too little or nothing at all will result in an even greater deficit of jobs, incomes; and confidence,’ Mr Obama said.

‘That is a deficit that could turn a crisis into a catastrophe, and I refuse to let that happen.’