Treasury to take $250 billion stake in banks to infuse capital

WASHINGTON -- The Treasury Department will announce today a dramatic revamping of its $700 billion plan to rescue ailing financial firms, quickly using up to $250 billion to buy stock in banks, including nine of the biggest U.S. financial institutions.

The government would also temporarily guarantee new loans between banks and temporarily offer to insure unlimited deposits in accounts that don't pay interest, such as checking accounts. The new guarantee would go beyond the $250,000 federal insurance that generally applies to bank deposits.

President Bush was scheduled to announce the new initiatives early Tuesday after executives of the country's biggest banks were summoned to a remarkable meeting at the Treasury Department on Monday. Treasury Secretary Henry Paulson basically told the bank CEOs that they had to accept the government stock purchases for the good of the U.S. economy.

The Investment Company Institute, the trade group for mutual funds, said unlimited insurance on bank checking accounts would prompt investors to shift money from money market mutual funds to banks. But Scott Talbott, a senior vice president at The Financial Services Roundtable, which represents the nation's largest banks, said his group "strongly supports the use of these tools."

The planned moves are part of the $700 billion rescue package passed by Congress and signed by President Bush on Oct. 3. The Treasury may still buy bad assets, mostly mortgage-related, as was earlier the focus. But the thrust has shifted to government purchases of bank stock, as allowed by the new law.