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U.S. to Expand Plan For Rescuing Banks

Dow rises more than 900 points; Europe also acts

The Bush administration plans to greatly expand protections for the U.S. banking system out of deep concern for the faltering economy, an industry official said last night after bank executives and top federal officials had met to revamp the largest bailout plan in the nation's history. President Bush was to announce the expansion this morning.

Earlier yesterday, stocks soared around the world in response to dramatic government economic-rescue efforts in the United States and overseas - and the possibility of the even bolder U.S. action. The Dow Jones industrial average shot up more than 900 points, or 11.1 percent - a record gain in points. The broader Nasdaq and Standard & Poor's 500 indexes were sharply higher, too - both rose nearly 12 percent.

And today, Japan's benchmark Nikkei 225 was up 11 percent in early trading. Japanese markets had been closed yesterday for a holiday.

The British government confirmed yesterday that it would inject a total of $63 billion into three leading banks - the Royal Bank of Scotland Group P.L.C., the parent of Citizens Bank of Pennsylvania; Lloyds TSB Group P.L.C., and HBOS P.L.C. - in return for equity stakes.

The Bush administration will use perhaps as much as $250 billion of the $700 billion bailout program recently approved by Congress to buy stock in U.S. banks, providing them with desperately needed money, the official said. In addition, the Federal Deposit Insurance Corp. will temporarily provide insurance for loans between banks, charging the banks a premium for doing so. That should unblock a vital credit flow that has come under severe stress.

The official, who spoke with knowledge of the Treasury Department meeting with the bankers yesterday, commented on condition of anonymity because the details of the plan had yet to be released.

The administration's proposals were explained during a meeting at the Treasury Department that had been called by Treasury Secretary Henry M. Paulson Jr. and included the top executives of the largest banks in the country. Federal Reserve Chairman Ben S. Bernanke also participated in the discussions.

The United States is also expected to guarantee new debt issued by banks for a period of three years, officials said.

And the FDIC will offer an unlimited guarantee on bank deposits in accounts that do not bear interest - typically those of businesses - bringing the United States in line with several European countries that have adopted such blanket guarantees, the New York Times reported.

Paulson, officials said, essentially told the participants in the meeting that they would have to accept government investment for the good of the U.S. financial system. This capital-injection plan will use a huge chunk of the money authorized for the Troubled Assets Relief Program, the Times reported.

Citigroup Inc. and JPMorgan Chase & Co. were told they would each get $25 billion; Bank of America Corp. and Wells Fargo & Co., $20 billion each (plus an additional $5 billion for their recent acquisitions); the Goldman Sachs Group Inc. and Morgan Stanley, $10 billion each, with the Bank of New York Mellon Corp. and State Street Corp. each receiving $2 billion to $3 billion. Wells Fargo will get $5 billion for its acquisition of Wachovia Corp., and Bank of America the same amount for its purchase of Merrill Lynch & Co. Inc., the Times reported.

The goal is to inject massive liquidity into the banking system.

The capital injections are not voluntary, with Paulson making it clear this was a onetime offer that everyone at the meeting should accept, the Times reported.

Among the banking leaders attending the meeting were Richard M. Kovacevich (Wells Fargo), Kenneth D. Lewis (Bank of America), John J. Mack (Morgan Stanley), John A. Thain (Merrill Lynch), Lloyd C. Blankfein (Goldman), James L. Dimon (JPMorgan), Vikram S. Pandit (Citi) and Robert P. Kelly (Bank of New York Mellon).

Yesterday, Europe put $2.3 trillion on the line to protect the continent's banks, a figure that overshadows the Bush administration's $700 billion program, in its most unified response yet to the global financial crisis after a stumbling start.

The pledges by Britain and six of the countries that use the euro helped soothe stock markets, along with a promise by top central banks to provide unlimited short-term dollar credits.

The action by Germany, France, the Netherlands, Spain, Portugal, Austria and Britain came after weeks in which the governments often had acted at cross purposes and sniped at one another. Their piecemeal approach failed to stop steep, frightening slides on financial markets.

The pledged money will not go into a collective pot. Instead, governments were deciding individually how much to commit to supporting their own banks under broad guidelines agreed upon at a summit Sunday. The sums are considered a maximum; all of the money might not be spent if the financial crisis eases.

Stock markets rebounded yesterday after the European decision and other weekend efforts to find solutions to the financial crisis, which has crushed major banks in the United States and Europe and battered stock exchanges worldwide.

At the close, Germany's DAX was 11.4 percent higher, while France's CAC-40 was up 11.2 percent. Britain's FTSE 100 rose 8.3 percent.

And Wall Street roared back after its worst week ever and staged the biggest single-day stock rally since the Great Depression yesterday. The move finally offered relief from eight consecutive days of market carnage.