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Treasury to unveil plan to combat banking crisis

(Agencies)
Updated: 2009-03-23 18:59

In this March 16, 2009 file photo, Treasury Secretary Timothy Geithner (L) looks at President Obama as they meet with small business owners and community lenders at the White House in Washington. [Agencies]

Administration officials said they want to get the new program launched and see how successful it is before deciding whether to ask Congress for more resources.

The administration included a placeholder in its budget request to Congress last month for an additional US$750 billion, more than doubling the financial rescue effort, but many lawmakers have said the current bailout fatigue among voters dims the prospect of getting further resources.

According to administration officials, the toxic asset program will have three major parts:

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_A public-private partnership to back private investors' purchases of bad assets, with government support coming from the US$700 billion bailout fund. The government would match private investors dollar for dollar and share any profits equally.

_Expansion of a recently launched Fed program that provides loans for investors to buy securities backed by consumer debt as a way to increase the availability of auto loans, student loans and credit card debt. Under Geithner's plan for the toxic assets, that US$1 trillion program would be expanded to support purchases of toxic assets.

_Use of the FDIC, which insures bank deposits, to extend loans to support purchases of toxic assets.

The administration's revamped program for toxic assets is the latest in a string of banking initiatives which have also included efforts to deal with mortgage foreclosures, boost lending to small businesses and unfreeze the market for many types of consumer loans.

In addition, the nation's 19 biggest banks are undergoing intensive examinations by regulators, due to be completed by the end of April, to determine whether they have sufficient capital reserves to withstand an even more severe recession. If they need more capital and cannot raise it on their own, they will be able to get funds from the government.

In addition to unveiling the toxic asset program, Geithner on Tuesday will release the administration's broad framework for overhauling the financial system to ensure that the current crisis is not repeated.

A key part of that regulatory framework will give the government new resolution authority to take over troubled institutions that would pose a threat to the entire financial system if they failed.

Administration officials believe this new power will save taxpayers money and avoid the type of controversy that erupted over the AIG bonuses.

Under the new powers being sought, the administration, with approval by the Federal Reserve, could seize a troubled institution and have the power to limit payments to creditors and to break contracts governing executive compensation, a power that was lacking in the AIG case.

In the regulatory overhaul, the administration is expected to offer more general proposals to deal with the problem of executives taking excess risks so that they could reap sizable bonuses.

The regulatory plan is also expected to include a major change that gives the Federal Reserve more powers to oversee systemic risks to the entire financial system.

The administration is working to unveil its proposed regulatory changes in advance of a meeting of the Group of 20 economic leaders, which President Barack Obama will attend on April 2 in London. European nations have complained that lax financial regulations in the United States set the stage for the current financial crisis.

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