White House considers ownership stakes in banks

WASHINGTON (AP) - The Bush administration is considering taking
ownership stakes in certain U.S. banks as an option for dealing with a
severe global credit crisis.

An administration official, who spoke on condition of anonymity because
no decision has been made, said the $700 billion rescue package passed
by Congress last week allows the Treasury Department to inject fresh
capital into financial institutions and get ownership shares in return.

This official said all the new powers granted in the legislation were
being considered as the administration seeks to deal with a serious
credit crisis that has caused the biggest upheavals on Wall Street in
seven decades and continues to roil global markets.

Supporters of this approach, such as Sen. Charles Schumer, D-N.Y.,
argue that injecting fresh capital into U.S. banks who want to
participate in the program would be an effective way to bolster banks'
balance sheets and get them to resume lending. Taxpayers would benefit
because the government would receive an equity stake in the bank in
return for providing the capital.

"This idea would, at a minimum, complement the administration's planned
approach of buying up troubled assets and may prove to be the most
promising tool of all in Secretary Paulson's kit," Schumer said in a
statement.

A decision to inject capital directly into financial institutions in
return for ownership stakes would be similar to a plan announced
Wednesday by Britain.

Treasury Secretary Henry Paulson told reporters that Treasury was
moving quickly to implement the $700 billion rescue effort and he
specifically mentioned reviewing ways to bolster the capital of banks.

"We will use all the tools we've been given to maximum effectiveness,
including strengthening the capitalization of financial institutions of
every size," Paulson said at a Wednesday news conference.

Asked whether he would try something like the British plan, Paulson
said: "We have a broad range of authorities and tools. ... We've
emphasized the purchase of liquid assets, but we have a broad range of
authorities. And I'm confident we have the authorities we need to work
with going forward."

The administration so far has stressed its major goal is to purchase bad loans from financial institutions.

Paulson said that while the financial market turmoil has hurt the
economy, the administration is moving quickly to begin the largest
financial system rescue effort in history.

Even with the program to buy bad assets from financial institutions, he
said, some banks will fail. He also called for patience, saying "the
turmoil will not end quickly and significant challenges remain ahead."

In an attempt to help stop the financial crisis from causing a global
economic recession, the Federal Reserve and other central banks cut
interest rates in a rare coordinated move Wednesday.

Paulson called the coordinated rate cuts "a welcome sign that central
banks around the world are prepared to take the necessary steps to
support the global economy during this difficult time."

Paulson on Monday selected Neel Kashkari, 35, an assistant Treasury
secretary, to be the interim head of the new program. In his remarks
Wednesday, Paulson said the administration would move quickly to
nominate someone to fill the job permanently.

Paulson said he was consulting with President Bush, congressional
leaders and presidential candidates Barack Obama and John McCain before
choosing someone to fill the job permanently. The post requires Senate
confirmation, something Paulson predicted could occur in November.

The administration has been rushing to implement the program, which
cleared Congress last Friday. Paulson said it would be several weeks
before the program makes its first purchases of troubled assets.

"U.S. and global financial markets continue to be severely strained,"
Paulson said at the briefing called to preview the upcoming weekend
meetings of finance officials of the Group of Seven major industrial
countries, the 185-nation International Monetary Fund and the World
Bank. The global credit crisis was expected to be the major agenda item
at those talks.