The U.S. government's initiative to rescue the struggling U.S. banking
industry includes four steps to increase the flow of money through the
financial system.
First, the federal government will offer to
buy non-voting ownership stakes in banks, giving the institutions more
money to lend to customers. The Treasury Department says nine large
financial organizations have indicated an interest in the program.
Second,
a government agency that insures bank deposits will temporarily
guarantee some loans issued by banks - a step designed to make it
easier for banks to lend money to each other.
The Federal
Deposit Insurance Corporation, or FDIC, also will expand insurance to
cover accounts that businesses use for daily transactions, such as
paying employees.
In the fourth step, the Federal Reserve will
begin a new program to help fund American corporations by buying
so-called "commercial paper" from them. Commercial paper is a written
promise by a company to repay a short term loan often used to finance
day to day operations.
These initiatives
are designed to be temporary, and come with conditions. For example,
the Treasury Department says banks that receive money from the federal
government will have to limit the amount of pay they give to executives.
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