Sen. Schumer makes financial markets proposal

WASHINGTON (Reuters) - Sen. Charles Schumer proposed a plan on Thursday to ease financial market turmoil, urging future federal capital infusions for banks conditioned on their making loan modifications and other terms.

The New York Democrat proposed setting up a federal agency that would "provide capital to struggling financial institutions in exchange for an equity stake in the banks," similar to the Depression-era Reconstruction Finance Corp.

Under the proposal, banks would agree to "judicial loan modifications" and allow "bankruptcy judges to facilitate the refinancing of mortgage loans on primary residences, which is the major obstruction to efforts to help the housing market."

Schumer said in a statement, "This step would allow federal and private efforts to modify loans, and avoid defaults and foreclosures, which have been at the root of the turmoil in U.S. financial markets."