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US plans to inject capital into banks: Paulson

Treasury Secretary Henry Paulson has said that the US government planned to invest directly in US banks to prevent them from failing, expanding the focus of the government's 700-billion-dollar rescue plan.

business Updated: Oct 11, 2008 13:31 IST

Treasury Secretary Henry Paulson has said that the US government planned to invest directly in US banks to prevent them from failing, expanding the focus of the government's 700-billion-dollar rescue plan.

"We're going to do it as soon as we can do it and do it effectively," Paulson said yesterday when asked about an equity-buying plan.

"There's no doubt in our mind, given the magnitude of the issue ... That we can use the taxpayers' money more effectively and efficiently ... If we develop a standardized program for making, encouraging equity participation," he added.

A 700-billion-dollar US government rescue plan approved last week had initially focused on the problem of liquidity for banks by offering to buy up their toxic assets.

Paulson's comments underline how the Treasury is increasingly in favour of investing directly in struggling banks which are unable to raise new capital from private investors.

Implementing the rescue plan, called the Troubled Asset Relief Programme (TARP), is taking time because of the complexity of the problems, but Paulson said officials were "working around the clock to deal with this."

Paulson has warned that the first purchases of toxic assets could take several weeks and he gave no timetable for the equity purchase program.

"I'm not prepared to say today about the relative sizes of the two efforts," he said when asked about the amount of money that would be spent on buying assets relative to the amount for equity.

Under a G7 "action plan" announced yesterday, the economic powers would seek to ensure that banks "can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses.