US offers more cash to ailing banks

Regulators say they could provide more cash to struggling banks in new programme.

    Obama is due to unveil the US's 2010 financial
    budget to US congress [AFP]

    It also comes as Barack Obama, the US president, is to host a fiscal responsibility summit at the White House on Monday aimed at curbing the US's enormous deficit, estimated at $1.2trn, not including the recent $787bn stimulus package.

    He is currently in talks with US governors from all 50 states in Washington DC on the financial crisis and to solidify support for the stimulus package.

    The US president is also due to unveil details of his proposed 2010 financial budget in his first speech to congress on Tuesday.

    The plan, which must be approved by congress, is expected to propose halving the federal budget deficit in four years by cutting and reforming social safety nets and reducing spending in Iraq.

    Bank rumours

    The Treasury Department, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Office of Thrift Supervision and the US Federal Reserve jointly issued the statement amid growing concern that some of the US's largest banks may need additional assistance to survive the US's worst financial crisis since the 1930s.

    In depth
    Under the assistance programme, should banks be in need of additional cash they can seek private investment or temporary funds which will be provided by the US government, regulators said.

    The programme is part of a larger financial rescue plan announced earlier in February by Timothy Geithner, the US treasury secretary, that will include the creation of a public-private partnership to buy up so-called "toxic assets" on US banks' books.

    The news follows US media reports that US bank Citigroup was in talks with the US government over taking a bigger stake in the bank, with the Wall Street Journal reporting it could be as much as 40 per cent of the bank's stock.

    Risky assets

    Citigroup has already recieved $45bn of US government funding along with guarantees to cover losses on hundreds of billions of dollars in risky investments and loans from the government.

    Bank of America, which also received $45bn from the government and guarantees on a portion of its risky assets, is also among the banks that investors fear could be poised for a US government takeover.

    However the US government has denied it could partly or entirely nationalise the banks, with Robert Gibbs, the White House spokesman, saying on Friday there were no plans for the government to take further control of the US financial system.

    "This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government," Gibbs said.

    Al Jazeera's John Terrett in New York says nationalisation remains a dirty word in US business circles, which is why the Obama administration says it is prepared to stand behind banks with money as a cushion, but wants private equity firms such as sovereign wealth funds to assist the banks.

    Only if the private sector cannot help will the government step in, he says, although there remains a real concern that the banks will be overwhelmed by their debts.

    US stocks fell after an initial rally on Monday, with the Dow Jones Industrial Average falling 77.18 points, or 1.05 per cent, to 7,288.49 in mid-morning trading.

    SOURCE: Agencies


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