Geithner to unveil updated financial bailout plan Tuesday

WASHINGTON -- Treasury Secretary Timothy Geithner today will unveil a sweeping plan to shore up the financial system that could deliver more than $1 trillion as the government works with the private sector to buy troubled assets from lenders, make bank capital injections and expand a Fed lending program.

Treasury wants to use federal funds as seed money to induce the private sector to buy bad assets. The government will create a public-private entity that could buy up to $500 billion in toxic assets, say a congressional official and an industry official who did not want to be identified because they were not authorized to speak on the issue. The government could also absorb, or guarantee, part of the losses from bad assets held by financial firms.

The administration will also use $100 billion to expand a recently-created $200 billion Federal Reserve program. That program, designed to bolster lending for student loans, credit cards and auto loans, will also cover bonds backed by commercial real estate and privately issued mortgage-backed securities. The new funding is designed to leverage hundreds of billions of additional activity under the Fed program.

Banks could receive more capital under the plan, which will be funded from the remaining $350 billion of last year's $700 billion financial rescue plan. But to get aid, banks would be subject to beefed up supervision or stress testing, especially big banks.

At a news conference Monday, President Obama, while not discussing the details of the plan, said it was vital for the economy.

"We don't know yet whether we're going to need additional money or how much additional money we'll need until we've seen how successful we are at restoring a sense of confidence in the marketplace that the federal government and the Federal Reserve Bank and the FDIC, working in concert, know what they're doing," Obama said.

The FDIC is the Federal Deposit Insurance Corp.

Former Treasury secretary Henry Paulson initially requested the $700 billion to buy troubled assets that are hurting lenders' balance sheets, but changed course and injected capital into banks.