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21 May 2024

More funds may be needed to stabilise financial system

By Reuters

President Barack Obama's top economic adviser has not ruled out that more money may be needed to stabilise the US financial system as a deep recession increases losses of banks.

Lawrence Summers, head of the National Economic Council, also said there was no question that tax cuts passed under former president George W Bush needed to be repealed, though he would not be pinned down on exactly when.

"We can make important progress and get started with the support that has been provided," Summers said on NBC's Meet the Press when asked whether taxpayers should expect another request for funding to shore up the financial system. "What ultimately will be necessary is something that will play out over time."

House of Representatives Speaker Nancy Pelosi said earlier that "some increased investment" may be needed beyond the $700 billion (Dh2.57 trillion) approved in the last quarter.

The bailout fund was first pitched as a way to get bad assets off the banks' books in the hope that doing so would help restore normal lending and get the economy going.

Instead, most of the money has gone to buy stakes in banks, and both Democrats and Republicans have complained that the cash was doled out with too few strings attached and insufficient oversight.

But as the economy weakens and unemployment rises, the pile of bad debts on bank balance sheets is expected to grow, which may force Obama's administration to take bolder action.

One idea that has been much discussed on Wall Street is setting up a "bad bank" that would serve as a repository for those assets that are difficult to value or sell. Summers did not comment directly on that concept, although other members of Obama's economic team have mentioned it as an option.

Summers said Obama and his choice for Treasury secretary, Timothy Geithner, would provide more detail on economic policy in the coming weeks, but they said an $825bn stimulus package working its way through Congress is the proper size and shape to help revive the economy.