WASHINGTON — The Bush administration is considering taking ownership stakes in a number of U.S. banks as one option it might use to deal with a serious credit crisis, an administration official said Wednesday.
This official, who spoke late Wednesday 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 that all the new powers granted in the legislation were being considered as the administration seeks to deal with a serious credit crisis that has already caused the biggest upheavals on Wall Street in seven decades.
A decision to inject capital directly into financial institutions in return for ownership stakes would be similar to a plan announced earlier Wednesday by Britain.
Asked about the British approach, Treasury Secretary Henry Paulson did not reject the idea but said he did not want to speculate on which of the new powers would be employed.
"We have a broad range of authorities and tools," Paulson told reporters. "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 government of British Prime Minister Gordon Brown had announced earlier in the day an $87.5 billion plan to partly nationalize major banks in a bid to shore up that country's financial sector.
Sen. Charles Schumer, D-N.Y., who has been pushing the government to take equity stakes in U.S. banks, said the British decision would provide a good test case for the United States.
"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.
The administration so far has stressed that its major goal is to purchase bad loans from financial institutions as a way to clear their balance sheets and encourage them to resume normal lending in an effort to keep the credit crisis from pushing the country into a deep recession.
Paulson said the financial market turmoil has hurt the economy, but he said the administration is moving quickly to begin the largest financial system rescue effort in history.
He said even with the program to buy bad assets from financial institutions, 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. The post requires Senate confirmation.
Paulson said he was consulting with President Bush, congressional leaders and presidential candidates Sens. Barack Obama and John McCain before choosing someone to fill the job permanently. He said he would work with the Senate on the choice when lawmakers return in November.
The administration has been rushing to implement the program which cleared Congress on Friday.
"Getting it right is as important as getting it done quickly," Paulson said at a Treasury briefing. He 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 and 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.
On Monday, the department also issued guidelines to govern the purchase of bad assets and guard against conflicts of interest. It also asked for applications from private management firms who would like contracts to help run the program. Those applications were due by 5 p.m. EDT on Wednesday and there was an expectation that some firms could be selected by the end of this week.