US Considers Bank-Debt Guarantees

U.S. Treasury Secretary Henry Paulson reportedly is fast-tracking a plan to guarantee debt issued by banks after a similar move was made by European policy makers over the weekend.

Such a step would be part of a three-pronged strategy to free up credit markets that also calls for the government to buy shares in financial companies and invest in distressed assets under the $700 billion program recently approved by Capitol Hill lawmakers.

In order to maintain a level playing field for American lenders, the Treasury may also have to offer a backstop for U.S. banks’ debt.

At an emergency summit in Paris on Oct. 12, European leaders agreed to offer guarantees for new bank debt and committed to using taxpayer funds to bolster lenders’ capital.

Source: Bloomberg, Rebecca Christie and Robert Schmidt (10/13/08)

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