Corrects second paragraph to say plan could be announced as early as Tuesday, not Wednesday
By David Lawder
WASHINGTON (Reuters) - The U.S. Treasury and Federal Reserve were working on Monday to finalize details on a plan to recapitalize banks and stabilize financial markets in the wake of new measures announced in Europe.
The plan, which is expected to provide more clarity on how the Treasury will acquire equity stakes in U.S. financial institutions, could be announced as early as Tuesday. The plan also could include some form of guarantee for interbank lending or increased deposit guarantees as some European countries have done.
Treasury officials said they were moving forward on an action plan announced on Friday with other Group of Seven wealthy economies to "improve the availability of funding for our banks."
Britain, Germany, France, Italy and other European governments on Monday announced rescue packages totaling hundreds of billions of dollars aimed at unsticking locked-up global credit markets, some of which guaranteed bank debt and others guaranteeing interbank loans.
"Treasury and the Fed are meeting today with leading financial market participants to finalize details on a financial market stabilization initiative," Treasury spokeswoman Brookly McLaughlin said on Monday.
The Wall Street Journal reported that U.S. Treasury Secretary Henry Paulson had called a 3 p.m. EDT (1900 GMT) meeting with the heads of Bank of America Corp
The spokeswoman declined to confirm the time nor the participants but said the meeting would be held at the U.S. Treasury Department in Washington.
Earlier on Monday, the head of the Treasury's new $700 billion financial rescue program, Neel Kashkari, disclosed some details about the Treasury's plan to acquire stakes in banks.
As the credit crisis quickly worsens, the Treasury is quietly pushing aside its original plan, the Treasury Asset Relief Program (TARP), to buy illiquid mortgage related assets in favor of giving banks a direct capital injection, which would provide relief more quickly.
"We are designing a standardized program to purchase equity in a broad array of financial institutions," Kashkari told a banking group.
"As with the other programs, the equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions. It will also encourage firms to raise new private capital to complement public capital," he added.
In closing its deal to buy a stake in Morgan Stanley, officials of Japan's Mitsubishi UFJ Financial Group Inc <8306.T> sought the Treasury's assurances that its investment would not be wiped out if the U.S. government were to invest in the Wall Street investment bank.
Kashkari also said the Treasury would name asset managers in the coming days to manage mortgage-backed securities and whole mortgages purchased under the program.
"Treasury is implementing its new authorities with one simple goal -- to restore capital flows to the consumers and businesses that form the core of our economy.
Achieving this goal will require multiple tools to help financial institutions remove illiquid assets from their balance sheets and attract both private and public capital," Kashkari said.
(Reporting by David Lawder)
