Bailout Package of $250 Billion Announced By Paulson For 9 Major U.S. Banks

Washington, D.C. (AHN) - The U.S. Treasury Department will unveil on Tuesday a plan to invest $250 billion on American banks. Aside from the fresh infusion of funds, the department is expected to guarantee new debts issued by banks for three years. Both measures are expected to encourage lending among banks and to new borrowers.

The Federal Deposit Insurance Corporation will also offer unlimited guarantee on bank deposits on non-interest bearing accounts usually held by businesses. This would bring the U.S. banking system deposit guarantee on par with the practice in several European nations.

The $250 billion cash infusion, which is part of the $700 billion bailout package approved by Congress, in effect will be a partial nationalization of nine large American banks. Fifty percent of the $250 million will go to Citigroup, Bank of America, Wells Fargo, Goldman Sachs and JPMorgan Chase, while the remaining 50 percent will be distributed to smaller banks.

In exchange for the financial bailout, Federal officials will set conditions on the loan including seeking government permission prior to hiking dividends and no new retirement packages for bank executives, although the old packages will be retained.

Treasury Secretary Henry Paulson disclosed the cash infusion plan during a meeting with nine of the country's leading bankers at a Monday afternoon meeting. President George Bush will make the formal announcement Tuesday morning.

New of fresh funds for ailing American banks revitalized the U.S. stock market which had an 11 percent increase on Monday, the largest single-day gain since the 1930s. The Dow Jones industrial average gained 936 points.

Similar measures taken by European nations had also resulted to stock surges in the continent. Trading in Paris and Frankfurt also reported their largest one-day gains in response to bailout packages made by the French and German governments.