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Obama admin settles on plan to inject fresh capital in banks

This article was posted on Feb 7, 2009 and is filed under Press Releases

NEW YORK: After weeks of internal debate, the Obama administration has settled on a plan to inject billions of dollars in fresh capital into banks and entice investors to purchase their most troubled assets, a media report said on Saturday.

The incentives to investors, the New York Times said, could be in the form of commitments to absorb some of the losses from any assets they purchase, should their values continue to decline.

The new financial industry rescue plan, to be outlined in broad terms on Monday in a speech by Treasury secretary Timothy F Geithner, will not require banks to increase their lending despite criticism that institutions that already received money from the Troubled Asset Relief Programme (TARP) either hoarded it or used it to acquire other banks, it said.

The goal is to relieve the banks of their worst assets so that private investors might then provide more capital, the paper said.

The government, the Times said, would assume some of the risk of declining assets at the heart of the economic crisis. But by relying on a combination of private investors and government guarantees, the administration hopes to reduce its exposure to losses and avoid the problem of having to place a value on assets that institutions have been unable to sell.

A central element of the plan would be a major expansion of a lending facility begun in November by the Federal Reserve Bank of New York when it was headed by Geithner.

The programme, which was initially financed by USD 200 billion in Fed money and USD 20 billion in seed capital from the USD 700 billion bailout fund, lent money to investors to buy securities backed by student, auto and credit card loans, as well as loans guaranteed by the Small Business Administration, the paper noted.

The Obama administration officials were quoted as saying that they have rejected nationalising institutions by taking large ownership stakes. They also will not immediately seek additional money from Congress beyond the USD 350 billion left in the TARP fund.

source: Economictimes

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