Treasury Unveils New Bank Rescue Plan

Public-Private Investment Part of New Strategy to Infuse Banks
Treasury Unveils New Bank Rescue Plan
Treasury Secretary Timothy Geithner today spelled out the government's attack plan to stabilize and repair the country's economy. Saying that the U.S. financial system is badly damaged and is in need of more government help to avoid a collapse that could spell disaster to the country's troubled economy, Geithner set out the Obama Administration's overhaul of the $700 billion bank rescue plan left over from the Bush Administration.

The Obama administration's new approach breaks into three parts:

More capital for banks;
Financing for as much as $1 trillion of consumer and business loans;
Publicly-funded financing for private investors willing to buy distressed or "toxic" assets from banks.

The plan calls for the creation of a joint Treasury and Federal Reserve program that will cost anywhere from $250 billion to $500 billion. It is aimed to entice investors to buy bad mortgage-related assets from banks. The Federal Reserve will finance this through its balance sheet, and the Federal Deposit Insurance Corporation may also provide guarantees for participating in the "bad bank" program.

"This program will provide government capital and government financing to help leverage private capital to help get private markets working again for the legacy loans and assets that are now burdening the entire financial system," Geithner says in his prepared remarks.

The second part of the plan would increase to $500 billion - $1 trillion the $200 billion program run by the Federal Reserve set up in November to thaw the credit market for commercial, student, auto and credit card loans.

The third part would review the capital levels of all banks, including future loss projections to assess how much more money each bank should get. Those funds would be taken from the rest of the $350 billion TARP funds, which is now renamed the Financial Stability Plan.

Next week a separate $50 billion initiative will be announced to help millions of homeowners facing impending foreclosure to renegotiate the terms of their mortgages.

Geithner says he realizes "the American people have lost faith in the leaders of our financial institutions" and are skeptical of the rescue spending so far. Public criticism began almost immediately after the plan was passed last fall and became more vocal when it was revealed that some of the banks that received TARP funds handed out bonuses totaling more than $18 billion for 2008. Geithner says this comprehensive strategy will cost money, involve risk and will take time, but pledged that "we will be guided by the principles of transparency and accountability."

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About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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