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WASHINGTON: The United States, after saying it plans to buy stakes in banks, is set to unveil specific measures Tuesday on how it will shore up the banking system and market confidence.
The US Treasury has announced it was gearing up to purchase equity in a "broad array" of financial firms.
Treasury Secretary Henry Paulson hosted a meeting with interested parties to discuss a financial market stabilisation initiative, a spokeswoman said.
The top official in charge of the country's US$700-billion rescue package outlined details of what would be done.
"We are designing a standardised programme to purchase equity in a broad array of financial institutions," Neel Kashkari, Treasury Secretary Henry Paulson's pointman on the massive programme, told a meeting of bankers in Washington.
"As with the other programmes, the equity purchase programme will be voluntary and designed with attractive terms to encourage participation from healthy institutions," he said, according to the text of his speech to the Institute of International Bankers.
Analysts said the Treasury was poised to give the markets the concrete actions they craved after the eurozone's 15 member nations forged a united front against the crisis Sunday.
"The US is expected to outline a comprehensive plan of its own as soon as Tuesday and is likely to include interbank lending and bank debt guarantees, and direct capital injections in financial institutions," John Ryding and Conrad DeQuadros at RDQ Economics wrote in a client note.
Kashkari broadly outlined a new offensive to combat the worst global financial crisis since the 1929 market crash, telling bankers that in buying stakes in financial groups, the government would "also encourage firms to raise new private capital to complement public capital."
Kashkari, 35, is in charge of the Troubled Assets Relief Program (TARP), the US$700-billion financial lifeline created by emergency legislation on October 3.
Under the TARP, the government is authorised to take a wide range of exceptional measures, including the purchase of toxic mortgage-related assets from ailing financial institutions in a bid to unclog frozen credit flows.
The former Goldman Sachs executive also named new senior recruits charged with running the programme drawn from both the private and public sectors, including Tom Bloom, chief financial officer of the Comptroller of the Currency who will be interim CFO.
The Treasury later named Chicago firm EnnisKnupp as its TARP investment adviser.
Some economists have criticised Paulson for initially proposing buying up the soured assets with the US$700 billion, arguing that directly injecting capital into troubled firms would be more effective in unblocking credit, the lifeblood of the economy.
But the revised legislation approved by Congress added provisions that made buying equity possible.
US economist Paul Krugman, a fierce critic of Washington's handling of the current financial turmoil, welcomed the Treasury's shift in focus after Britain announced Wednesday a plan to take direct stakes in banks.
"US Treasury officials now say that they plan to do something similar, using the authority they didn't want but (that) Congress gave them anyway," said Krugman, who won the Nobel Economics Prize on Monday.
"The question now is whether these moves are too little, too late. I don't think so," he said.
Senator Charles Schumer, meanwhile, urged Paulson to only buy equity stakes in financial firms that agree to take certain actions, such as cutting dividends paid to shareholders and limiting executive pay.
Kashkari told bankers that the Treasury is implementing its new authorities "with one simple goal - to restore capital flows to the consumers and businesses that form the core of our economy."
Kashkari also said the Treasury was working "very closely with both domestic and international regulators to understand how best to design tools that will be most effective in dealing with the challenges in our financial system."
He said seven teams had been created to develop policies and tools required under the TARP, with one of them in charge of insuring the troubled assets of banks.
Kashkari said the Treasury was planning to recruit two auditing companies to oversee the rescue programme.
"Throughout this process, we have kept in mind one clear priority: to protect the taxpayers by making the best use of their money.
A former Goldman Sachs vice president, Kashkari followed his boss Paulson, who had been chief executive of the Wall Street bank, to the Treasury, where he is assistant secretary for international economics and development.
- AFP/yb
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