Investment in banks is most likely to be the next step of the US government to handle the worsening credit crisis as per the treasury secretary Henry Paulson.
Yesterday, Paulson informed the reporters specifically that he has been given broad based authority last week by the Legislation Congress to rescue financial institutions.
“It is the policy of the federal government to use all resources at its disposal to make our financial system stronger. We will use all of the tools we’ve been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size.’’ said Paulson.
According to the data compiled by Bloomberg, there have been losses worth $592 billion whereas the banks worldwide have added only $442 billion of new capital which is not enough. Moreover, the losses are likely to more than double to 1.4 trillion according to IMF (International Monetary Fund).
Since the financial crisis, which accelerated last month in the country the G-7 have met for the first time. It was a group of seven industrial nations, which gathered in Washington to discuss the implications of the crisis. Paulson spoke two days before this important meeting. With the motive to decrease the effects of this credit crisis, the Federal Reserve, European Central Bank and four other central banks lowered interest rates a few hours before the meeting.
Gordon Brown, the U.K Prime Minister opted yesterday to partly nationalize at least eight British banks by spending 50 billion pounds ($87 billion). Following the meeting, Paulson made important points. He didn’t give much importance to new plans as he believes that it would “not make sense to have identical policies” because each countries’ circumstances are different.
He also believes that the US rescue plan will not solve the problem completely for all the firms. “One thing we must recognize — even with the new Treasury authorities, some financial institutions will fail,” Paulson said. Instead, regulators will take measures to limit the systemic risk from any single bank failure, he said
The law, approved by Congress Oct. 3, gives the government power to buy assets, provide guarantees and “address capital raising,’’ President George W. Bush’s working group said. The working group is headed by Paulson and includes the Fed, Securities and Exchange Commission and Commodity Futures Trading Commission.
“Patience is also needed because the turmoil will not end quickly and significant challenges remain ahead,” Paulson said. “Neither passage of this new law nor the implementation of these initiatives will bring an immediate end to current difficulties.”
