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US to unveil new bank bail-out US unveils new $1.5 trillion plan
(about 1 hour later)
US Treasury Secretary Timothy Geithner is due to announce later how he intends to spend the remaining $350bn (£236bn) of the government's bank bail-out fund. US Treasury Secretary Timothy Geithner has unveiled a comprehensive $1.5 trillion (£1.02 trillion) bank bail-out plan to beat the financial crisis.
Although no details have yet been released, Mr Geithner is expected to unveil stricter conditions on how the funds can be spent. Under the plan, the size of a key Federal Reserve lending program will be expanded to $1 trillion from $200bn.
This follows criticism that President Bush did not specify sufficient rules. In addition, a public-private investment fund of $500bn will be created to absorb banks' toxic assets.
Mr Geithner is also tipped to announce new guarantees to encourage private investors to buy up banking bad debt. "Right now critical parts of our financial system are damaged," Mr Geithner said.
'Critical damage' "Instead of catalyzing recovery, the financial system is working against recovery, and that's the dangerous dynamic we need to change," he added.
Reports in the US say Mr Geithner wants to see big private investors purchase more than $1 trillion in troubled banking assets. Leading US stock indexes fell after Mr Geithner started his speech on the new plan.
We don't know yet if we'll need additional money, or how much President Obama Q&A : Bank bail-out
To do this, Mr Geithner is expected to propose the creation of a new "aggregator" bank into which ordinary banks will be able to offload any remaining bad debt.
Private investors will then be encouraged to invest in the new bank, with guarantees on what they put in.
"Right now critical parts of our financial system are damaged," Mr Geithner said in a written statement ahead of the unveiling of the new plans, which is due to be unveiled at 1600 GMT.
"Instead of catalyzing recovery, the financial system is working against recovery and that's the dangerous dynamic we need to change."
Crisis 'not over'Crisis 'not over'
We don't know yet if we'll need additional money, or how much President Obama Q&A : Bank bail-out plan
President Obama said on Monday that Mr Geithner's plan would be a template for "restoring market confidence".President Obama said on Monday that Mr Geithner's plan would be a template for "restoring market confidence".
"The credit crisis is real, and it's not over," added the president."The credit crisis is real, and it's not over," added the president.
Mr Geithner is also expected to announce new cash injections for banks to further improve their liquidity, new schemes to help struggling homeowners, and renewed efforts to encourage more lending to consumers.
President Obama has so far said it is too early to say whether the $700bn bank bail-out scheme, officially called the Troubled Asset Relief Program (Tarp), will need more funds.President Obama has so far said it is too early to say whether the $700bn bank bail-out scheme, officially called the Troubled Asset Relief Program (Tarp), will need more funds.
"We don't know yet if we'll need additional money, or how much additional money we'll need," he said."We don't know yet if we'll need additional money, or how much additional money we'll need," he said.
Tarp was passed by President Bush in October, whose administration spent the first $350bn.Tarp was passed by President Bush in October, whose administration spent the first $350bn.
It is separate from President Obama's wider economic stimulus plan that is continuing to be debated in the Senate. This is expected to cost as much as $800bn. Meanwhile, President Obama's wider economic stimulus plan is facing a crucial vote in the Senate. This is expected to cost an additional $800bn.