Bernanke says U.S. plan to help revive markets: report

SINGAPORE (Reuters) - Federal Reserve Chairman Ben Bernanke said a U.S. financial rescue plan to be fleshed out on Tuesday would restore normality to markets and lay the groundwork for economic recovery.

Bernanke, writing an opinion piece in the Wall Street Journal, added his voice to growing calls for reform to address "gaps and deficiencies" in regulation exposed by the global financial crisis.

Bernanke did not give details of the plan, which will be announced as part of efforts by governments worldwide to prevent a rupture of the global financial system after a series of U.S. and European bank failures.

"These steps will allow us to restore more normal market functioning, and encourage private capital to further support the reinvigoration of financial markets," Bernanke wrote in the editorial published on the newspaper's web site.

By moving to restore confidence in the financial system, Washington will lay "the groundwork for financial and economic recovery", he said.

"Our economy will not be able to function at its best unless and until financial market stability returns."

People familiar with the U.S. plan said on Monday the United States would inject $250 billion into U.S. banks to try to calm rattled markets, with about half going to the country's top nine institutions.

The Treasury is expected to announce on Tuesday it will buy stakes in Bank of America Corp, Wells Fargo, Citigroup, JPMorgan

Chase & Co, Goldman Sachs, Morgan Stanley and Bank of New York Mellon Corp, two sources told Reuters News on condition of anonymity.

Other media reports indicated that State Street Corp and Merrill Lynch would also receive a capital injection.

All except Bank of America would have to raise $10 billion in matching capital to qualify, a source said.

CAPABLE OF PROVIDING CREDIT

Although the government had acted quickly, most banks were still solvent and able to lend, Bernanke wrote.

"History teaches us that government engagement in times of severe financial crisis often arrives very late, usually at a point at which most financial institutions are insolvent or nearly so. Fortunately, that is not the situation we face today," he said.

"The Congress and the administration acted at a time when the great majority of financial institutions, though stressed by highly volatile and difficult market conditions, remain capable of fulfilling their critical function of providing new credit for our economy."

The U.S. plan would follow the principles agreed by the Group of Seven rich nations, including the United States, at meeting in Washington last week, Bernanke wrote.

G7 governments said they would do everything in their power to unfreeze credit and money markets, and prevent the failure of "systemically important" financial institutions.

Britain, Germany and France, all G7 members, and other European countries have pledged more than 1 trillion euros ($1.36 trillion) to bolster their own banks.

"I also find it heartening that we are seeing not just a national response but a global response to the crisis, commensurate with its global nature," Bernanke wrote.

The Bush administration will also reveal plans on Tuesday to allow the Federal Deposit Insurance Corp -- which guarantees bank accounts -- to insure senior preferred debt issued by banks and thrifts for three years, one of the sources said.

Bernanke said U.S. authorities would need to address the causes of the crisis and change regulation to prevent future turmoil.

"A comprehensive review of our regulatory structures is an essential task in the coming year," he wrote.

"The events of the past year or two have highlighted regulatory gaps and deficiencies that we must address to improve the structure of our markets and the resiliency of our economy."

Authorities are facing growing pressure plug gaps regulations that allowed U.S. mortgage defaults to blow up into a global credit squeeze and eventually a financial firestorm.

The head of a U.S. congressional finance panel said on Monday he would seek to regulate the $55 trillion credit default swaps market, which has been blamed for exacerbating the financial meltdown.

Used by banks, brokerages, insurance companies and others, the swaps -- contract used to insure debt against default -- have been criticized because the opaque market makes it impossible to know the size of a counterparty's exposures and where they lie.

(Additional reporting Kazunori Takada)

(Writing by Dayan Candappa; Editing by Neil Fullick)