Obama team seeks fresh approach to bank crisis

By Tim Ahmann and Caren Bohan

NEW YORK (Reuters) - U.S. President-elect Barack Obama is seeking new ways to end a credit crisis that is roiling world economies and he warned on Saturday of the vast challenges a worsening economy poses for Americans.

A top adviser to Obama, who takes office on Tuesday, said a fresh approach to the crisis would be unveiled in coming days.

People familiar with the thinking of Obama's team said it was considering setting up a government-run bank, or possibly banks, to acquire bad assets clogging the financial system and which are blocking new lending.

British Prime Minister Gordon Brown urged banks to disclose the true scale of their bad assets as a first step to resolving a crisis that shows little sign of abating and shook financial markets around the globe again this week.

Efforts to corral the toxic assets behind the financial turmoil come in the last days of President George W. Bush's administration, which has struggled to contain the crisis and was slow to recognize how much it was weakening the economy.

In addition to steps to bolster banks, Obama officials want to aggressively attack the underlying causes of the credit crisis, David Axelrod, a top adviser to Obama, told Reuters.

"What we have to do is approach this with a lot more transparency on the front end," Axelrod said about what he called a revamped financial rescue package.

Obama has vowed to spend hundreds of billions of dollars to jolt the country out of a deepening recession.

"Only a handful of times in our history has a generation been confronted with challenges so vast," Obama said as he began a train trip from Philadelphia to Washington three days before his inauguration.

Outgoing U.S. Treasury Secretary Henry Paulson and Federal Deposit Insurance Corp Chairman Sheila Bair said on Friday a government bank to absorb "toxic" assets from private banks was one of a number of ideas U.S. regulators had been discussing.

Obama advisers were also considering ways of getting bad loans off the books of banks, the sources familiar with his team's thinking said.

One of the sources said options included creating a single national "bad bank," individual institutions to specialize in different asset classes, or "bad banks" within existing large private banks, or some combination of the three.

TOXIC LOANS

Britain's Brown said any recovery from the worst economic crisis in 70 years would depend on banks first writing off toxic loans to restore confidence in the financial system.

The global slowdown could deepen unless countries unite to end the crisis, he said.