Paulson promises swift action but warns of more bank failures

Oct 8, 2008, 22:08 GMT

Washington - Treasury Secretary Henry Paulson on Wednesday warned that more banks would fail as the US financial system goes through a tough period of restructuring, and promised to use all powers at his disposal to ease the economic fallout.

Paulson asked for 'patience' from the public and said it would take 'several weeks' before the US Treasury began buying up troubled mortgage assets at the heart of the credit crisis.

Legislation passed by Congress last week allows the Treasury to buy up to 700 billion dollars in mortgage-backed securities and boost the capital positions of struggling financial institutions, in an effort to keep credit flowing through the US economy.

Congress passed the measure after a wave of bankruptcies, bail- outs and takeovers of banks and mortgage lenders through September in the United States. Paulson warned that there were more collapses to come.

'One thing we must recognize: even with the new Treasury authorities, some financial institutions will fail,' he told reporters in Washington.

The rescue package 'doesn't exist to save every financial institution for its own sake,' Paulson said.

He suggested that more measures to ease the credit crunch were still in the pipeline. Paulson warned the financial turmoil 'will not end quickly' but said he was confident in the resilience of the US economy.

'We are a strong and wealthy nation, with the resources to address the needs we face,' he said.

Later this week in Washington, Paulson will host finance ministers and central bank heads from the Group of Seven (G7) industrial nations to discuss the international response to the credit crisis.

Paulson announced a 'special meeting' of the Group of 20, which includes emerging economies, on the sidelines of annual gathering of the International Monetary Fund and World Bank over the weekend.

Members of the G20 'will discuss how we might coordinate to lessen the effects of global market turmoil and the economic slowdown on all of our countries,' he said.