Treasury and Fed pledge rapid response to crisis
WASHINGTON -- The president's top economic advisers are pledging to work with their counterparts around the world to restore confidence and stability to financial markets.
The President's Working Group on Financial Markets said in a statement Monday it planned to quickly implement the expanded authorities granted to federal regulators by the $700 billion rescue package passed on Friday. The working group was formed after the 1987 stock market crash.
The group, which includes Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, said it planned to move "with substantial force on a number of fronts."
The statement was one of a number of rapid-fire announcements released early Monday before Wall Street stocks began trading.
It came as European governments took steps to limit the damage from the growing global financial crisis. Among other things, the governments of Germany, Ireland and Greece said they would guarantee bank deposits.
In a fresh effort to loosen dangerous credit clogs, the Federal Reserve said it will significantly expand its loan program to squeezed banks by billions of dollars.
The Fed said that 28-day and 84-day cash loans being made available to banks will be boosted to $150 billion a piece, effective Monday. Those increases will eventually bring the amounts outstanding under the program to $600 billion.
Loans that will be made available in November to banks also will be increased to $150 billion each. That makes a total of $900 billion in credit potentially outstanding over year end, the Fed said. Banks have a chance to bid on a slice of the cash loans at Fed auctions.
The Fed also said it will begin paying interest on commercial banks' reserves, another way to expand the Fed's resources to battle the worst credit crisis in decades.
Congress in the $700 billion bailout bill President Bush signed on Friday gave the Fed the power to pay interest on those reserves for the first time. The law accelerated the effective date to October of this year versus in 2011. That will encourage banks to keep more resources at the central bank.
Meanwhile, Treasury said it would expand the size of its upcoming debt auctions to handle the increased borrowing needs to fund the $700 billion bailout effort, which is expected to buy about $50 billion in troubled assets each month. Treasury said it was considering bringing back the three-year note besides expanding the size of other debt auctions.
