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US bank rescue to include private sector

WASHINGTON - US Treasury Secretary Timothy Geithner said on Tuesday a new banking rescue plan will include public-private partnerships as part of an effort to stabilize the teetering financial system.

In a statement ahead of a much-anticipated announcement of the banking plan, the US Treasury offered few specifics but indicated the measure would be a comprehensive effort to reinvigorate the ailing sector.

Geithner “will unveil a comprehensive Financial Stability Plan that will bring the full force of the federal government together in partnership with the private sector to stabilize our financial system and open up the flow of credit that families and businesses depend on to keep our economy strong,” a Treasury statement said.

“Building on President (Barack) Obama’s commitment to “do whatever it takes’ to stabilize our financial system and protect consumers, Secretary Geithner will make it clear that the response to the financial crisis must be comprehensive and forceful and that action has to be sustained until financial recovery is firmly established.”

The statement was issued just ahead of an announcement set for 1600 GMT to explain how the government intends to spend the roughly second half of the 700-billion-dollar Troubled Asset Relief Program begun last year under president George W. Bush.

“Along with new programs to prevent home foreclosures, restore confidence in the markets and create public-private partnerships to boost lending, the Financial Stability Plan will institute a new era of accountability, transparency and conditions on financial institutions receiving funds,” the Treasury said.

The Washington Post reported Tuesday that the banking rescue eventually could involve 1.5 trillion dollars in public and private funds.

The Post said a public-private partnership would seek to finance the purchasing of toxic bank assets that are at the heart of the credit crisis through a so-called aggregator bank to buy up mortgage securities clogging the financial system.

The aggregator bank, commonly known as a “bad bank” because of the toxic assets it would acquire, would be designed to allow banks to dispose of soured assets without worsening their weakened condition.

The toxic assets are at the core of the financial crisis. They include failing mortgages and other bad investment bets that are weighing on banks and are difficult to value, keeping credit flows seized up.