US Injects $250 Billion into Banks


Summary: In an unprecedented move away from the original plan, the Treasury Department announced a plan to invest up to $250 billion in some of the largest US banks. The United States is also expected to guarantee new debt issued by banks for three years. This will encourage banks to resume lending to one another and to customers. The Federal Deposit Insurance Corporation will offer an unlimited guarantee on bank deposits in accounts that do not bear interest, which will bring the United States in line with several European countries, which have adopted such guarantees. This announcement caused a huge surge in the Dow Jones industrial average, as this plan increased confidence in the US financial system. Of the $250 billion, which will come from the $700 billion bailout approved by Congress, half is to be injected into nine big banks, including Citigroup, Bank of America, Wells Fargo, Goldman Sachs and JPMorgan Chase. The other half is to go to smaller banks and thrifts. This decision strays from the original bailout strategy of buying distressed assets from struggling companies, but has been generally seen as a smart move and one that will instill confidence.

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