WASHINGTON - The government has extended a new multibillion-dollar lifeline to one of the country's biggest banks as officials continue to struggle with a serious crisis in the financial system.
After a marathon negotiating session, the Bush administration reached an agreement early Friday to provide Bank of America with an additional $20 billion in support from the government's $700 billion financial rescue fund.
The administration, the Federal Reserve and the Federal Deposit Insurance Corp. also agreed to participate in a program to provide guarantees against losses on approximately $118 billion in various types of loans and securites backed by residential and commercial real estate loans.
The bulk of these holdings were assumed by Bank of America when it acquired Merrill Lynch in a deal that closed earlier this year.
Bank of America had already been granted $25 billion from the bailout fund that Congress passed on Oct. 3, but found it needed more as it sought to cope with rising losses related to its acquisition of Merrill Lynch.
In a joint statement, the Treasury, Fed and FDIC pledged that "the U.S. government will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks."
With the latest commitment, the Bush administration has actually gone beyond the first $350 billion of the rescue program. But officials told reporters on a conference call early Friday morning that sufficient resources were available because a portion of the first $350 billion will not be spent until coming weeks.
The $20 billion which will be used to inject capital into Bank of America was to be transferred on Friday, the officials said.
There is widespread unhappiness in Congress over how the Bush administration has implemented the first phase of the $700 billion program, the largest government bailout in history.
But the Senate on Thursday turned aside an effort to block release of the second $350 billion after the incoming Obama administration pledged to utilize more of the second half of the fund to help stem mortgage foreclosures and bolster credit for consumers and small busineses.
However, Federal Reserve Chairman Ben Bernanke said in a speech Tuesday that he would like to see much of the remaining part of the rescue program devoted to bolstering the banking system, where continuing weakness is raising concerns among policymakers.
Bernanke, Treasury Secretary Henry Paulson and other government officials have struggled to restore confidence in the financial system, which has been rocked by billions of dollars in losses on mortgages and other types of loans.
The administration has focused on supplying billions of dollars to banks in the form of government purchases of bank stock in the hopes that the banks will use the fresh infusion of capital to resume more normal lending.
In the joint statement, the government agencies said the new support for Bank of America was designed "to strengthen the financial system and protect U.S. taxpayers and the U.S. economy."