US Senate urged to back revised bank rescue

The United States Senate prepared to vote on Wednesday on a revised $700-billion plan aimed at halting the worst financial crisis since the Great Depression.

The White House and European policymakers urged the US Congress forward, and the chief executive of Germany’s Deutsche Bank said Europe should be prepared to take similar steps.

The Senate agreed to take on the Bill to try to renew momentum after a stunning defeat in the US House of Representatives on Monday. A Senate vote is expected some time after 11.30pm GMT.

US stocks, which have closely followed the fortunes of the Bill, fell 2 % in early trading on nervousness over the bailout and worry that it won’t be enough. US Treasury bond prices rose as investors sought a safe haven.

“Blind faith doesn’t work this time after Monday’s disappointment,” said Andre Bahkos, president of Princeton Financial Group in Princeton, New Jersey.
“People are cautious and they lack confidence that a bailout plan will be a one-step solution. It won’t be.”

Lawmakers revised the package in talks on Tuesday to increase to $250 000 from $100 000 the limit on individual bank deposits guaranteed by the government. The change was intended to appeal to House Republicans who voted against the bailout plan on Monday.

The White House said President George Bush would speak with Senators on Wednesday to urge them to vote for the rescue plan, which would allow the Treasury to buy toxic mortgage-related assets from banks.

“We’re seeing increased evidence of the credit squeeze on small businesses and municipalities all across the country, so it’s critically important that we approve legislation this week and limit further damage to our economy,” White House spokesperson Tony Fratto said.

Global money markets remained frozen against a backdrop of governments stepping in to rescue European banks this week and Citigroup’s agreement to buy Wachovia.

The crisis has toppled Wall Street firms, frozen lending among banks and overshadowed campaigning for the US presidential election on November 4.

Jean-Claude Juncker, chairperson of the eurozone’s finance ministers, said the US had to adopt the plan, a view echoed by Russian Finance Minister Alexei Kudrin.

“It is the responsibility of the United States to other countries,” Kudrin said.

The chief executive of Germany’s Deutsche Bank said Europe should look at a US-style rescue.

“If the United States passes such a package, Europe should be prepared to find similar solutions,” Josef Ackermann told reporters.

If the Senate passes the Bill on Wednesday, it must still be approved by the House.

John Boehner, the top Republican in the House, believes the changes in the Senate version of the Bill will appeal to Republicans who blocked it on Monday, a spokesperson said.

Republicans who voted against it cited complaints from their constituents that taxpayers were being asked to bail out Wall Street. After stock markets fell on Monday, cutting the value of retirement plans for millions of Americans, those complaints turned to support for the package, according to members of Congress and staffers.

Lobbyists from the banking industry and the US Chamber of Commerce were trying to identify House members who might reconsider their Monday “no” votes, and business executives around the world warned the crisis would hit growth.

Both US presidential candidates have urged lawmakers to get the amended package passed.

European action
In Europe, French President Nicolas Sarkozy will host a meeting of senior EU officials on Saturday to coordinate a response to the crisis washing across the Atlantic.

European Commission president Jose Manuel Barroso said the EU needed stronger financial supervision and greater consistency in national deposit guarantee schemes.

The financial chaos, which has prompted comparisons with the Great Depression of the 1930s, has redrawn the banking landscape in the US and Europe.

Wall Street giants Bear Stearns, Lehman Brothers and Merrill Lynch have been swallowed by rivals, and gone is the investment banking model that dominated for decades after Goldman Sachs and Morgan Stanley sought commercial bank status.—Reuters

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