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Bush outlines US banking rescue US unveils $250bn banking rescue
(about 1 hour later)
President George W Bush has announced that the US government is to buy stakes in the country's largest banks. The US government has announced a $250bn (£143bn) plan to purchase stakes in a wide variety of banks in an effort to restore confidence in the sector.
In a move expected to cost $250bn (£143bn), the US government is moving to try to return stability to the American banking sector. President George W Bush said the move would help to return stability to the US banking sector and ultimately help preserve free markets.
Federal authorities will also temporarily insure most new debt issued by American banks. US federal authorities will also temporarily insure most new debt issued by US banks.
"This is an essential short-term measure to ensure the viability of America's banking system," he said. The moves echo similar steps taken by the UK and other European countries.
"This is an essential short-term measure to ensure the viability of America's banking system," Mr Bush said.
"This is not intended to take over the free market, but to preserve it.""This is not intended to take over the free market, but to preserve it."
Mr Bush also said that the Federal Reserve would finalise work on a new programme that would make it the buyer of last resort for companies' short-term debt, known as commercial paper. Mr Bush also said that the Federal Reserve would finalise work on a new programme that would make it the buyer of last resort for companies' short-term debt, known as commercial paper. We must do this to restore confidence in the financial system Henry Paulson, US Treasury Secretary
Further, government insurance is being expanded to cover accounts used by small businesses. Furthermore, government deposit insurance is being expanded to cover accounts used by small businesses.
'Restore normality' 'Objectionable'
The money will come from the $700bn bail-out package approved by US lawmakers earlier this month.The money will come from the $700bn bail-out package approved by US lawmakers earlier this month.
The US plan - effectively part-nationalisation - comes after the bosses of the country's largest banks were summoned to a special meeting at the US Treasury on Monday.The US plan - effectively part-nationalisation - comes after the bosses of the country's largest banks were summoned to a special meeting at the US Treasury on Monday.
Speaking overnight, US Federal Reserve chairman Ben Bernanke said he was confident the moves would be successful. Treasury Secretary Henry Paulson said that the lack of confidence in the financial system was a threat to the US economy.
"These steps will allow us to restore more normal market functioning and encourage private capital to further support the reinvigoration of financial markets," he said. He said that taking equity stakes in banks "was objectionable to most Americans, including myself".
"We regret taking these actions," Mr Paulson said.
"But we must do this to restore confidence in the financial system."
Mr Paulson said the government would buy stakes in a "wide variety" of banks and thrifts - financial institutions similar to building societies in the UK.
Nine banks have so far signed up to the deal.
Federal Reserve chairman Ben Bernanke said that the US strategy would evolve and adapt to new developments:
"We will not stand down until we have achieved our goals of repairing and reforming our financial system," he said.
Share surgesShare surges
Anticipation of the US announcement has had a major impact on global shares:
  • Japan's main Nikkei index closes Tuesday up 1,171 points or 14% at 9,448, the biggest one-day rise in its history
  • The UK's FTSE 100 was up 243 points or 5.7% at 4,500 in early afternoon trading in London.
  • Germany's Dax had advanced 274 points or 5.4% at 5,336, while France's Cac had added 187 points or 5.3% at 3,719
  • Wall Street's Dow Jones ended Monday up 936 points or 11% at 9,388
  • Australian shares advance 431 points or 4%
Anticipation of the US announcement has had a major impact on global shares:
  • Japan's main Nikkei index ended Tuesday up 1,171 points, or 14%, at 9,448, the biggest one-day rise in its history
  • The UK's FTSE 100 was up 243 points, or 5.7% ,at 4,500 in early afternoon trading in London
  • Germany's Dax had advanced 274 points, or 5.4%, to 5,336, while France's Cac had risen 187 points, or 5.3%, to 3,719
  • Wall Street's Dow Jones ended Monday up 936 points, or 11%, at 9,388
'Too small' Restrictions
The US government is expected to buy preference shares in the banks. The US government said it would buy preference shares in the banks.
Preference shares pay a fixed rate of interest instead of a dividend, which has to be paid before other shareholders receive anything, but they do not carry voting rights.Preference shares pay a fixed rate of interest instead of a dividend, which has to be paid before other shareholders receive anything, but they do not carry voting rights.
Banks that receive the cash injections will be subject to restrictions on executive pay.
US taxpayers may even end up making a profit from the shares if the rescue packages work and the banks recover, but that is not guaranteed.US taxpayers may even end up making a profit from the shares if the rescue packages work and the banks recover, but that is not guaranteed.
Despite the big rises in global shares, some analysts have questioned whether the US move is bold enough.
"The actual amount [of the plan] is still a little small," said Nagayuki Yamagishi, a strategist at Mitsubishi UFL Securities.
European leadEuropean lead
America's move comes a day after the UK said it would inject up to £37bn of taxpayers cash into British banks Royal Bank of Scotland, Lloyds TSB and HBOS. The US move comes a day after the UK said it would inject up to £37bn of taxpayers cash into British banks Royal Bank of Scotland, Lloyds TSB and HBOS.
And European governments that share the euro are putting aside more than 1 trillion euros to protect banks through guarantees and other emergency measures.And European governments that share the euro are putting aside more than 1 trillion euros to protect banks through guarantees and other emergency measures.
The bulk of the money will be used to guarantee lending between banks.The bulk of the money will be used to guarantee lending between banks.
The cash will also be used to take stakes in ailing banks.The cash will also be used to take stakes in ailing banks.