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.
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.
“One of the necessary elements for the next stage is for people to have a clear understanding that bad assets have been written off,” Brown told the Financial Times in an interview.
Shares in Britain’s biggest banks fell sharply on Friday on fears of more write-downs and the return of short-selling after a temporary ban.
Barclays was the worst hit. Its shares closed down 25 percent at 98 pence, the lowest since 1993.
After the markets closed, the bank took the unusual step of reporting that it expected pretax profits for 2008 to be “well ahead” of analysts’ forecasts. Barclays is not due to release its annual results until February 17.
Shares in top U.S. banks also fell sharply this week.
Major German banks have so far written off only about a quarter of the nearly 300 billion euros ($397.7 billion) in toxic U.S. assets on their books, a German magazine reported, citing a government survey of 20 big lenders.
That means banks face more huge losses as they mark down the value of U.S. assets backed by mortgages and student loans, Der Spiegel reported, according to the study prepared by the Bundesbank and markets regulator BaFin.
The sudden contraction of the global economy is worrying officials who fear recessions could spark a dangerous bout of deflation, when prices spiral downward. Slower growth already is casting a longer and darker shadow over economies.
Bank regulators on Friday closed two small banks, the first U.S. banks to fail in 2009 but the latest in a series that began last year as a struggling economy and falling home prices took their toll on financial institutions.
Reporting by Tim Ahmann, Jim Wolf and Susan Heavey in Washington, Caren Bohan in Wilmington, Delaware, Peter Griffiths in London, Michael Shields in Frankfurt and Thorsten Severin in Berlin; Writing by Herbert Lash; Editing by Peter Cooney