Treasury's Geithner To Unveil Financial Plan Monday


Treasury Secretary Timothy Geithner, as expected, will announce on Monday a "comprehensive plan" to stabilize the financial system.

In a noon news conference, Geithner will lay out a "strategy to strengthen our economy by getting credit flowing again to families and businesses," the Treasury said. The plan will include an aid package for the banking industry, according to a well-informed source.

Treasury Secretary Timothy Geithner

CNBC.com first reported Thursday that the plan was essentially complete and would be announced Monday.

According to the source, the banking component will be "smaller" than originally expected, include some "bad bank" component but be centered around government guarantees and insurance of troubled assets—what's called a "ring fence" concept.

"Everybody seems to like that," said the source. "There's a lot of internal conflict about whether this [the bad bank] makes sense ... they realize they have to do something with the bad bank."

Other sources told CNBC that the "bad bank" would be able to buy up to $500 billion in troubled assets from financial institutions. Every bank would be subject to a uniform "stress test" to see if the bank needs additional capital, these sources said.

At this point, the Obama administration appears to have settled on the most controversial aspect of the bad bank: pricing the toxic debt.

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The government will buy toxic assets below the banks' "carrying value," which is basically market value, but not at fire-sale levels, the source said, representing something of a compromise.

Such a pricing approach will likely placate both taxpayer and Congressional concerns about the government overpaying for the assets. But, the source noted, it could "trigger an accounting problem for the banks," presumably because the institutions will have to report a loss on the transactions.

The Obama administration is now working on ideas to address that, which might entail a temporary suspension of certain accounting rules.

It is unclear what that might be, said the source.