Treasury Secretary Timothy Geithner announced a new 500-billion-dollar federal program to remove toxic assets from bank balance sheets that he said "are now clogging" the US financial system.
"The financial system as a whole is still working against recovery," Geithner said in an article published by The Wall Street Journal. "Many banks, still burdened by bad lending decisions, are holding back on providing credit."
He said the administration of President Barack Obama had developed a new "Public-Private Investment Program" that will set up funds to provide a market for the toxic loans and securities issued by banks over the past several years.
"Our judgment is that the best way to get through this is if we can work with the markets," Geithner said.
"We don't want the government to assume all the risk. We want the private sector to work with us," he added.
Outlined last month, Geithner plan calls for investing 500 billion dollars in soaking up the banks' troubled loans and securities. The government-private sector initiative could end up absorbing as much as one trillion dollars.
The US administration will sink around 100 billion dollars into the latest initiative, with the Federal Reserve and the Federal Deposit Insurance Corporation also participating.
To encourage investors to buy those assets, the US government will offer lucrative subsidies and shoulder much of the risk.
The Treasury also believes participants in the program shouldn't be subject to executive-pay rules imposed by Congress when it authorized its 700 billion dollar bailout bill and its 787 billion dollar stimulus package.
Geithner's plan will supplement earlier measures taken by the government to ease the credit crunch, including boosting consumer spending and helping homowners facing foreclosure.
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