Policy-makers weighing more steps to bolster banks

By Karey Wutkowski and Patrick Rucker

WASHINGTON (Reuters) - The George W. Bush administration may give an unlimited guarantee to bank deposits or buy a share of major banks in an effort to stabilize the battered financial sector and reeling markets.

Senior Bush policy-makers will hold a conference call with financial services leaders at 2:30 p.m. on Friday to discuss the deepening crisis.

In recent weeks, global credit markets have frozen on fears that more major financial companies will collapse.

The U.S. Treasury Department and bank regulators have been working feverishly to craft policies that will restore confidence in the market and unclench credit markets, said several sources familiar with the discussions.

The idea of lifting the lid on insured deposits and the government becoming a shareholder in major banks has become the focus of policy-makers in recent days, said the government and industry sources.

Another option being discussed is to just lift the insurance limit on the transaction accounts businesses routinely use to meet payrolls and pay vendors.

In an address on Friday morning, Bush attempted to soothe markets.

"The federal government has a comprehensive strategy and the tools necessary to address the challenges in our economy," Bush said, as he specifically mentioned the government's power to buy a stake in financial companies.

A Treasury spokesperson said on Friday that the possibility of equity-related purchases was one of several powers granted to the Treasury under the financial rescue legislation and added that any discussions on the topic would include Federal Reserve and White House representatives.

No announcements are said to be expected for at least several days on this.

While many industry sources agreed that more government aid could be helpful, they warned that an abrupt injection of government cash could startle investors who would likely see their stakes diluted. Also, it could send the signal that the banks are in worse condition that previously thought.

The end result could be a loss of confidence that nullifies the benefits of a capital injection.

Wayne Abernathy, executive vice president for financial institutions at the American Bankers Association, said what banks really need is a clearer idea of what U.S. government intervention plans may be.

"There's a fair amount of concern about the way things are put out there in a broad way without details, and with the impact the investor reaction has on the banks," Abernathy said.

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