WORLD> America
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WORLD> America
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Bush to announce new details of bank rescue plan
(Agencies)
Updated: 2008-10-14 20:10 In The Wall Street Journal on Tuesday, Federal Reserve chairman Ben Bernanke wrote: "Our strategy will continue to evolve and be refined, and we will adapt to new developments and the inevitable setbacks. But we will not stand down until we have achieved our goals of repairing and reforming our financial system, and thereby restoring prosperity to our economy." While the administration refused to provide details in advance of Bush's appearance, industry and government officials who were briefed on the proposals said the stock purchase was aimed at bolstering depleted capital reserves as a way of getting the institutions to resume more normal lending patterns. After the purchase of preferred stock in nine large banks, the program is expected to be expanded to many others. Among the initial banks participating will be all of the country's largest institutions, including Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley, said one official, with each institution expected to receive billions of dollars in return for the sale to the government of preferred shares. The advantage to the taxpayer is that if the rescue plan works, then the shares can be sold for more than the government initially paid, providing a profit on the transaction. Bush will certify Tuesday that another $100 billion is needed from the $700 billion rescue program. That would leave the final $350 billion to be spent, probably by the next president. In addition to the stock purchases, the Federal Deposit Insurance Corp. will temporarily provide insurance for loans between banks, charging the banks a premium for doing so, the officials who were briefed on the program's details said. This FDIC program would take the form of providing insurance for new "senior preferred" debt that one bank would lend to another. This debt would be insured by the FDIC for three years, helping to unlock bank-to-bank lending, which has fallen dramatically because of fears about repayment in the face of billions of dollars of bank losses because of bad loans, primarily in mortgages. The officials said the FDIC would remove for a period the current $250,000 limit on FDIC insurance on bank deposits for non-interest-bearing accounts. This primarily would benefit businesses who use non-interest-bearing accounts to run their companies. That money now would be insured, removing the need for companies to juggle funds among multiple bank accounts to stay under the $250,000 limit. Congress, as part of the bailout bill, temporarily boosted the deposit insurance cap from $100,000 to $250,000, an action that will not be affected by the new program. The $700 billion rescue program will continue to feature the purchase by the government of banks' bad assets, but the administration decided to place greater emphasis on the stock purchase program after doubts were raised about how long it might take to get the asset purchase program up and running. |
