Rebecca Christie and Robert Schmidt
Monday, Feb 9, 2009
Treasury Secretary Timothy Geithner is seeking to draw investors into the U.S. financial-rescue program, aiming to add private funding as a new component of proposals to address the toxic debt clogging banks’ balance sheets.
Aides worked through the weekend to complete the package that Geithner will announce tomorrow in Washington, which was delayed by a day. Aspects of the plan that have been settled include a new round of injections of taxpayer funds into banks, targeted at those identified by regulators as most in need of new capital, people briefed on the matter said.
The toughest issue has been the one Geithner’s predecessor failed to address: the illiquid assets that caused the credit crunch. A leading proposal is a so-called aggregator bank, featuring investors such as hedge funds and private equity, that may issue Federal Deposit Insurance Corp.-backed debt, the people said. It’s unclear how big a role there’ll be for guarantees of securities that stay on banks’ balance sheets.
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“We have to reach a point where investors and consumers have greater confidence in our financial system,” Philadelphia Federal Reserve Bank President Charles Plosser said in an interview. “Without that, these institutions will not be able to attract new capital or be able to fully resume their important role in providing credit.”