Treasury pumps money into banking system

By David Lawder and Mark Felsenthal

WASHINGTON (Reuters) - Top U.S. financial officials on Tuesday said they were injecting $250 billion into the battered U.S. banking system, moving swiftly on the heels of similar European action to try to boost investor confidence

At a press conference before U.S. markets opened, Treasury Secretary Henry Paulson said the government is buying nonvoting preferred shares in nine U.S. banks as it tries to beat back a credit crisis that threatens to swamp the economy.

Paulson, appearing with Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corp Chairman Sheila Bair, said the measures were distasteful to him but necessary due to a spreading lack of confidence in financial markets.

"Today's actions are not what we wanted to do but today's actions are what we must do to restore confidence in our financial system," Paulson said, adding the government was acting with "unprecedented speed" to try to "get our economy back on an even keel."

Stock prices leaped higher for a second straight day, with investors clearly heartened that policymakers were pulling out all stops worldwide to get credit that is the lifeblood of global commerce flowing again.

Paulson said nine banks were participating initially in the capital-injection program. Treasury refused to name them and said it was up to individual banks to say they were joining, though the names of several banks that are to receive capital already have been widely reported.

Among the banks widely reported to be participating are Bank of America Corp, Wells Fargo, Citigroup, JPMorgan Chase & Co, Goldman Sachs, Morgan Stanley and Bank of New York Mellon Corp.

Bernanke expressed confidence the latest bid to pump money into banks to try to persuade them to resume normal lending will work but cautioned it won't bring instant relief to a severely stressed U.S. economy.

"I am not suggesting the way forward will be easy," Bernanke said. Bair said the overwhelming majority of U.S. banks remained safe and sound but they were beset by a loss of confidence that policymakers were determined to counter.

"All of us are prepared to do whatever it takes to fix whatever problems arise and to work with Wall Street and Main Street to unclog the financial system," Bair said.

The $250 billion to be invested in U.S. banks -- effectively a partial nationalization of the U.S. banking system -- will come from a $700-billion financial bailout program originally approved by Congress to buy bad assets that were poisoning bank balance sheets.

It was a major alteration of Treasury's original plan for freeing credit markets, which relied more heavily on standard free-market principles, and Paulson made clear that he was turning to it only because he felt forced to do so.

"Government owning a stake in any private U.S. company is objectionable to most Americans, me included, but the alternative of leaving businesses and consumers without access to financing is totally unacceptable," Paulson said.

(Writing by Glenn Somerville; Editing by James Dalgleish)