Banks may benefit from US bail-out

The Bush administration has asked Congress for the sum to buy up toxic assets that are clogging the US financial system and threatening the economy as negotiations began on the largest operation of its kind since the Great Depression.

Although fine details have yet to be worked out, it would give Washington broad authority to purchase bad mortgage-related assets from US financial institutions for the next two years. The debts would then be held until they can be sold off in the future.

The unveiling of the plans by Treasury Secretary Henry Paulson on Friday sent markets around the world soaring, reversing some of the hefty losses seen during what had been been one of the most tumultuous weeks in financial history.

London's FTSE 100 Index posted its biggest ever one-day gain of nearly 9%, with banks like Barclays, Lloyds TSB and Royal Bank of Scotland (RBS) surging more than 20% in value.

The London market had been battered during the previous four days of turmoil which included the collapse of US investment bank Lehman Brothers, the bail-out of US insurance giant AIG and the £12 billion rescue of Halifax Bank of Scotland by Lloyds TSB.

The US Treasury has not specified which institutions would qualify or what, if anything, the government would get in return for the unprecedented bail-out. But in a fact sheet released on Saturday night, the department said it was looking to expand the bail-out to non-US companies if they determined it was necessary to stabilise markets.

RBS has taken a near £6 billion write down this year on its billions of pounds worth of credit crunch-related assets, with Barclays suffering write downs of £2 billion and HBOS £1.1 billion.

Congressional aides and administration officials are working through the weekend to finalise the proposals, and the White House is hoping to strike a deal with Congress by the time markets open on Monday. Lawmakers have said they would then push to enact the plan as early as the coming week.

President Bush said: "We're going to work with Congress to get a bill done quickly. This is a big package because it was a big problem."