In the latest effort to breathe life into the struggling economy, the Department of the Treasury announced that it will inject $250 billion into banks, while the Federal Deposit Insurance Corp. took additional steps to help depositors.
Using funds from the $700 billion financial market bailout package, the government will purchase equity stakes to help nine banking institutions lend money and spur economic growth. The move was announced by President George W. Bush this morning.
"These efforts are designed to directly benefit the American people by stabilizing our overall financial system," Mr. Bush said in remarks delivered from the Rose Garden.
"These measures are not intended to take over the free market, but to preserve it," he added.
Under the plan, institutions that sell shares to the government will accept restrictions on executive compensation, which includes a ban on golden parachutes.
The Treasury will divide $125 billion among Citigroup Inc. of New York; JPMorgan Chase & Co. of New York; Bank of America Corp. of Charlotte, N.C., Merrill Lynch & Co. Inc. of New York; Wells Fargo & Co. of San Francisco; The Goldman Sachs Group Inc. of New York; New York-based Morgan Stanley; Bank of New York Mellon Corp.; and State Street Corp. of Boston, according to published reports.
Another $125 billion will be used to shore up smaller banks, if needed.
Banks must announce their intention to participate in this plan before 5 p.m. on Nov. 14.
In another measure to strengthen banks, the FDIC will temporarily guarantee most new debt issued by insured banks.
Additionally, the FDIC will “immediately and temporarily” expand government insurance to cover all money in non-interest-bearing transaction accounts, which are primarily used by small businesses to cover day-to-day operations.
In the final measure outlined by Mr. Bush, the Federal Reserve Board will finalize a program to serve as a buyer of last resort for commercial paper, which is a key source of short-term financing for businesses and financial institutions.
After Mr. Bush spoke, Secretary of the Treasury Henry Paulson, Federal Reserve chairman Ben Bernanke and FDIC chairwoman Sheila C. Bair spoke at an appearance at the Department of the Treasury.
“The FDIC is taking this unprecedented action because we have faith in our economy, our country, and our banking system,” said Ms. Bair.
"We are acting with unprecedented speed, taking unprecedented measures that we never thought would be necessary. But they are necessary to get our economy back on an even keel, and secure the confidence and future of our markets," said Mr. Paulson.
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