US to unveil $250bn Europe-style banking bail-out, recomended by US Nobel Prize winner Krugman
US follows Europe style bank rescue system, recomended by American Nobel Prize Winner Dr. Paul Krugman, columinist New York Times Blog
By James Quinn in New YorkThe US government to inject $250bn in US banks Photo: Bloomberg
Last Updated: 7:12AM BST 14 Oct 2008
At the heart of the plan, which the US Treasury is expected to announce today, will be a move to take stakes in nine leading banks.
The US is also expected to guarantee new debt issued by banks for three years — a measure meant to encourage the banks to resume lending to one another and to customers, the New York Times reports.
The Federal Deposit Insurance Corporation will offer an unlimited guarantee on bank deposits in accounts that do not bear interest — typically those of businesses — bringing the US in line with several European countries, which have adopted such blanket guarantees.
Of the $250bn, which will come from the $700bn bailout approved by Congress, half is to be injected into nine big banks, including Citigroup, Bank of America, Wells Fargo, Goldman Sachs and JPMorgan Chase, officials told the New York Times. The other half is to go to smaller banks and thrifts.
The investments will be in preferred stocks so that the government can benefit from a rebound in the banks’ fortunes. At the banks that receive the state help, executive compensation will be restricted.
According to the New York Times Bank of America, Citigroup, JP Morgan Chase and Well Fargo will receive $25bn each. Investment banks Goldman Sachs and Morgan Stanley $10bn and Bank of New York and State Street around $2bn-$3bn each.
The strategy is in part very similar to that enacted by the British government, although no American banks are likely to be nationalised as a result.