Paulson, Bernanke say plan should unfreeze credit market By Rex Nutting, MarketWatch WASHINGTON (MarketWatch) -- President Bush announced Tuesday the government's latest measures aimed at bringing stability to the financial system and encouraging the nation's banks to begin lending again, with top officials spelling out details of the sweeping plan. The government mounted a full-scale push to explain the measures and their importance to helping the economy recover. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke said that the financial-market rescue plan to inject capital directly into banks will work. "As Americans well know, the challenged evident in the financial markets and in the economy are large and complex, but I believe that the steps taken today will help us overcome them," Bernanke said. Paulson said he regretted having to resort to the actions, adding they they're "what we must do to restore confidence to our financial system." The road ahead would not be easy, Bernanke said. However, the program "will help to restore confidence to our financial system and place our economy back on a path to vigorous, healthy growth," he added. The heart of the plan is the determination that the government should spend $250 billion to buy ownership stakes in major U.S. banks in an effort to recapitalize the financial sector. Banks have until Nov. 14 to request capital. The minimum amount for banks is 1% of their risk capital, while the maximum is $25 billion. The government will receive senior non-voting preferred shares and warrants to purchase common shares in return for the capital. As advertised, details of the Treasury preferred stock were beneficial for existing shareholders. The exercise price on the warrants will be the market price at the time of issuance, calculated on a 20-day trailing average. Banks must not hoard this capital but must "deploy it," Paulson said. "These efforts are designed to directly benefit the American people by stabilizing our overall financial system and helping our economy recover," Bush said after meeting with Paulson, Bernanke and other top advisers. Meanwhile, the Federal Deposit Insurance Corp. will insure all new bank debts in an effort to restart interbank lending. The FDIC will also insure all non-interest-bearing deposits. Bush described the measures as the "latest" steps to heal markets, leaving the door open for more action. On another front, the Fed announced a plan to provide a backstop for the commercial-paper market. The plan would be up and running by Oct. 27, the Fed said.

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