The U.S. government will buy shares of U.S. banks and financial institutions to help stabilize the economy amid the ongoing global financial crisis, President George W. Bush said on Tuesday.
“The federal government will use a portion of the $700 billion financial rescue plan to inject capital into banks by purchasing equity shares. This new capital will help healthy banks continue making loans to businesses and consumers,” Bush said.
He said the new capital would help faltering banks bridge the gap created by losses during the financial crisis, enabling them to resume lending and help spur job creation and economic growth.
In addition, the Federal Deposit Insurance Corporation will temporarily guarantee most new debt issued by insured banks, Bush said.
“This will address one of the central problems plaguing our financial system – banks have been unable to borrow money, and that has restricted their ability to lend to consumers and businesses,” Bush said. “When money flows more freely between banks, it will make it easier for Americans to borrow for cars, and homes, and for small businesses to expand.”
The FDIC will also immediately and temporarily expand government insurance to cover all non-interest bearing transaction accounts in a move to help small businesses cover their day-to-day operations, Bush said.
He added that the Federal Reserve was drawing up a plan to make it the “buyer of last resort for commercial paper.”
“By unfreezing the market for commercial paper, the Federal Reserve will help American businesses meet payroll and purchase inventory and invest to create jobs,” he said.
Bush said the U.S. government”s measures were part of a “coordinated plan for action to provide new liquidity, strengthen financial institutions, protect our citizens” savings, and ensure fairness and integrity in the markets,” which was worked out over the weekend by the finance ministers of the G7 group of leading industrial nations.
