US financial rescue plan to impose tougher rules: Report

WASHINGTON: President Barack Obama's rescue plan for the financial system will likely inject fresh capital into banks but with strict conditions as well as relief for homeowners, US media reported on Saturday.

Treasury Secretary Timothy Geithner on Monday is expected to announce the strategy on the use of the second half of the massive $700 billion Troubled Asset Relief Program (TARP), designed to avert bankruptcies and get credit flowing again.

The fund will be used for another contribution of capital to financial firms but with tougher rules this time, aa newspaper reported.

To help clean up the balance sheets of banks, the government would convert preferred shares it received from many financial firms into common stock - effectively swapping debt for equity - the paper wrote.



The blueprint would offer incentives designed to attract investors to buy troubled assets from banks, possibly in the form of commitments to absorb losses from any assets purchased, according to another report.

The new plan does not include a government "bad bank" to buy up toxic assets from financial firms, an idea was floated in recent weeks, the paper said.

Instead, the Treasury may move to expand the role of the Federal Reserve's term asset-backed securities loan facility, to cover assets in addition to the student, credit-card and car loans it was set up to handle. That program was launched to bolster the market for consumer loans.

To deliver relief to struggling homeowners, the Treasury chief will also propose setting out national rules for modifying loans that would be adopted by mortgage giants Freddie Mac and Fannie Mae, the Journal said.

And the rescue plan may also introduce a way to calculate the value of homes facing foreclosure to help expedite negotiations with borrowers, it said.

The TARP was approved by Congress in early October at the urgent request of George W. Bush's Republican administration.

The program has come in for sharp criticism including charges it has lacked oversight or an effective approach.

To the criticism, Geithner is weighing renaming the program and making it independent of the Treasury, the Journal said.

The plan would impose new rules for firms that receive or have already taken in government assistance, requiring a full accounting of how any bailout funds were spent.

Geithner said last week his team was "looking at a range of options."