Federal Reserve Chairman Ben Bernanke said a US financial rescue plan to be fleshed out would restore normality to markets and lay the groundwork for economic recovery.
Bernanke, writing an editorial in the Wall Street Journal, did not give details of the plan, which will be announced as part of government efforts to save the global financial system from collapse after a series of US and European bank failures.
“These steps will allow us to restore more normal market functioning, and encourage private capital to further support the reinvigoration of financial markets,” Bernanke wrote in the editorial published on the Wall Street Journal's web site. People familiar with the plan said on Monday the United States would inject $250 billion into US banks to try to calm rattled markets, with about half going to the country's top nine institutions.
The Treasury is expected to announce on Tuesday it will buy stakes in Bank of America Corp, Wells Fargo, Citigroup, JPMorgan Chase & Co, Goldman Sachs, Morgan Stanley and Bank of New York Mellon Corp, two sources told Reuters News on condition of anonymity.
Other media reports indicated that State Street Corp and Merrill Lynch would also receive a capital injection.
All except Bank of America would have to raise $10 billion in matching capital to qualify, a source said.
Although the government had acted quickly, most banks were still solvent and able to lend, Bernanke wrote.
“History teaches us that government engagement in times of severe financial crisis often arrives very late, usually at a point at which most financial institutions are insolvent or nearly so. Fortunately, that is not the situation we face today,” he said.
”The Congress and the administration acted at a time when the great majority of financial institutions, though stressed by highly volatile and difficult market conditions, remain capable of fulfilling their critical function of providing new credit for our economy.”
The US plan would follow the principles agreed by the Group of Seven rich nations, including the United States, at meeting in Washington last week, Bernanke wrote.
G7 governments said they would do everything in their power to unfreeze credit and money markets and prevent the failure of “systemically important” financial institutions.
Britain, Germany and France, all G7 members, and other European countries have pledged more than €1 trillion ($1.36 trillion) to bolster their own banks.
“I also find it heartening that we are seeing not just a national response but a global response to the crisis, commensurate with its global nature,” Bernanke wrote.
The Bush administration will also reveal plans on Tuesday to allow the Federal Deposit Insurance Corp - which guarantees bank accounts - to insure senior preferred debt issued by banks and thrifts for three years, one of the sources said. (Reuters)