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US may spend up to two trillion dlrs to save banks: report

world Updated: Jan 29, 2009 20:08 IST

The United States may spend up to two trillion dollars to bail out banks reeling from losses amid financial turmoil and a deepening recession, the

Wall Street Journal

reported on Thursday.

The US Congress this month agreed to release the second half of a 700 billion dollar financial bailout fund, most of which have so far been used to shore up ailing banks, but the report said lawmakers might be asked to approve even more money for the purpose.

Government officials have discussed spending another one to two trillion dollars to help restore banks to health, the Journal said, quoting people familiar with the matter.

Some of the remaining 350 billion dollars from the Troubled Asset Relief Program (TARP) fund has already been earmarked for other efforts, including aid to auto makers and to homeowners facing foreclosure, the report said.

A planned "bad bank" to buy troubled bank assets could be seeded with 100 to 200 billion dollars from the TARP fund with the rest of the money -- as much as one to two trillion dollars -- raised by selling government-backed debt or borrowing from the Federal Reserve, according to the Journal.

The administration of President Barack Obama is also seeking more effective ways to pump money into banks, and considering buying common shares in the banks, it said.

Government purchases so far have been of preferred shares, in an effort to both protect taxpayers and avoid diluting existing shareholders' stakes.

US banks are virtually paralyzed by a massive home mortgage meltdown at the epicenter of global financial turmoil which slammed the brakes on growth.