US lawmakers worked on a revised US$700 billion bank bailout ahead of a vote scheduled for late yesterday, sparking a global stock surge but banks around the world still faced a desperate struggle to find credit.
European policymakers yesterday urged the US Senate to approve the revised rescue plan.
The revised package, which the Senate will vote on sometime after 7:30pm, would increase the amount of federal insurance for individual deposits guaranteed from US$100,000 to US$250,000 in a bid to build Republican support.
But the main aim of the package remains unchanged — to allow the US Treasury to buy toxic mortgage-related assets from banks in a bid to unlock credit markets and head off deeper economic damage.
Analysts said a rebound in stock markets over the past two days indicated renewed hopes that the Senate would pass the deal, a move which would put pressure on the House of Representatives to follow suit when it meets later today.
The House threw out on Monday the initial plan assembled by Treasury Secretary Henry Paulson amid anger that ordinary taxpayers were being asked to bail out the banking industry.
Senate Majority leader Harry Reid said: “Senate Democrats and Republicans believe it is essential that we work quickly on this important legislation to restore confidence to our financial system and strengthen the economy.”
Senate Banking Committee Chairman Chris Dodd said that some of those who had rejected the bailout plan “are having second thoughts.”
Jean-Claude Juncker, chairman of the eurozone’s finance ministers, said yesterday that the US had to adopt the plan, a view echoed by Russian Finance Minister Alexei Kudrin.
“It is the responsibility of the United States to other countries,” Kudrin said.
Juncker also said the leaders of Germany, France, Britain and Italy would meet in Paris on Saturday, although he insisted that “there is no threat” to Europe’s banking system, because its banking system was not in the same “dramatic” state.
Economists warned, however, that much of the global interbank lending market was virtually closed and this was now at the heart of the crisis.
European Central Bank (ECB) President Jean-Claude Trichet alluded to this in a speech late on Tuesday, saying: “Let me emphasize that the ECB will continue to support solvent banks’ access to liquidity and the functioning of the money market as long as necessary.”
Analysts expect the ECB to hold its key rate at 4.25 percent at a meeting today, but some said new shock therapy was needed.
News that the US Senate would vote on a bailout plan energized stock markets yesterday. London shares opened 1.45 percent higher, Frankfurt stocks rose 0.10 percent and French stocks 0.46 percent.
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