US to buy stock in financial institutions

The US government will move ahead with a plan to buy stock in financial institutions, US Treasury Secretary Hank Paulson said.

The move was announced after a meeting of the G7 finance ministers, including UK chancellor Alistair Darling, in Washington.

The programme to purchase stock in the financial institutions will be open to a broad array of institutions, Mr Paulson said.

“As we develop plans to purchase equity... we are working to develop a standardised programme that is open to a broad array of financial institutions,” he said.

Mr Paulson said: ``We are developing strategies to use the authority to purchase and insure mortgage assets, and to purchase equity in financial institutions, as deemed necessary to promote financial market stability.''

The US administration received the authority to make direct purchases of stock in banks in the $700bn rescue package which the Congress passed last week.

It would mark the first time the government has taken equity ownership in banks in this manner since a similar programme was employed during the Great Depression.

Mr Paulson said the government’s programme would be designed to complement the efforts of banks to raise fresh capital from private sources.

He said that the government’s stock purchases would be of non-voting shares so that the government will not have power to run the companies.

The purchase of equity stakes in companies would be in addition to the main thrust of the rescue effort, which is to purchase distressed assets off the books of financial institutions in a bid to thaw frozen credit markets and to get banks to resume more normal lending operations.

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