Capitol Hill appears close to adopting the £350 billion "bad bank" bailout plan for the US financial system.
An agreement on the £350 billion bailout of the financial system in the US has been announced by lawmakers in Congress.
Both Republicans and Democrats said yesterday that a deal had been struck. The bailout plan will now enter law if, as seems likely, it is passed by the house of representatives and the senate.
The plan was first announced last week by treasury secretary Henry Paulson, when near-panic conditions set in on the markets due to the collapse of Lehman Brothers and the merger of Merrill Lynch and Bank of America. Investors were seen to be losing confidence in the financial sector as a whole, necessitating the US government to take drastic action in order to shore up the system.
Accordingly, Mr Paulson unveiled plans to set up a £350 billion "bad bank", in order to buy up some of banks' worst-performing assets. This would in turn boost trust between institutions and encourage them to lend to each other more.
However, lawmakers had several objections to the contents of the scheme, with Republicans in particular concerned over its possible costs to the taxpayer. Nevertheless, agreement now seems to have been reached after days of negotiations in Washington DC.
Amendments include the fact that the money for the bad bank will now be provided in separate tranches, rather than all at once. Executive pay in the financial services sector is also to be capped.
"This bill provides the necessary tools and funding to help protect our economy against a system-wide breakdown," Mr Paulson said in a statement.
