Bush: Treasury will take $250 billion stake in banks

WASHINGTON -- President Bush on Tuesday announced details of a dramatic change in the $700 billion plan to rescue ailing financial firms, with the government quickly using up to $250 billion to buy stock in banks.

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

Executives of the country's biggest banks were summoned to a remarkable meeting at the Treasury Department to hear the plan 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."

Under 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.

In The Wall Street Journal Tuesday, Federal Reserve chairman Ben Bernanke wrote: "Our strategy will continue to evolve and be refined, and we will adapt to new developments and the inevitable setbacks. But we will not stand down until we have achieved our goals of repairing and reforming our financial system, and thereby restoring prosperity to our economy."