Lawmakers geared up to vote Monday on creating a $700 billion government fund to buy bad debt and alleviate the financial crisis while European regulators scrambled to save two struggling banks.
After marathon talks into the wee hours of Sunday morning, congressional leaders from both parties emerged with an agreement that altered key parts of a Wall Street bailout program initially proposed by the Bush administration.
"I have great confidence the plan will work as originally envisioned. We had to make necessary concessions to protect taxpayers and respond to the political process, but this will result in meaningful assistance to financial markets," Treasury Secretary Henry Paulson told CNBC.
Lawmakers from both parties had reconvened Sunday to hammer it out on paper and present it to rank-and-file members of the House and Senate.
Republican Sen. Judd Gregg of New Hampshire said he expected the House to vote on the bill on Monday and hoped the Senate would too. However, with Congress set to close for the Jewish New Year holiday on Tuesday, sources said the Senate vote could slip to Wednesday.
Some sources said that, given Rosh Hashanah, the Jewish new year, on Tuesday, the Senate probably wouldn't vote on the bill until at least Wednesday.
Gregg expressed confidence that the money laid out in a taxpayer-funded bailout would be more than recovered.
The preceding week of negotiations over the rescue package roiled financial markets and altered the course of the U.S. presidential campaign less than six weeks before the election.
"We've made great progress," House Speaker Nancy Pelosi told reporters after the talks concluded Saturday night.
Paulson lobbied hard for the package — the largest bailout in U.S. history — saying it would keep credit markets from grinding to a halt under the burden of bad mortgage-backed bonds created by banks at a time when it looked like home prices had nowhere to go but up.
Congress was racing to reach an agreement before Asian financial markets open Monday to avoid a repeat of last week's white-knuckle volatility.
President Bush spoke with Pelosi on Saturday evening and news of a deal was welcomed at the White House.
"We're pleased with the progress tonight and appreciate the bipartisan effort to stabilize our financial markets and protect our economy," White House spokesman Tony Fratto said.
At one point, lawmakers consulted by phone with billionaire investor Warren Buffett, who last week invested $5 billion in Goldman Sachs and warned that markets were in a "dangerous situation" and on the verge of breaking down.
Amid public anger over the bailout, Democrats and Republicans rushed to add safeguards for taxpayers.
The proposed legislation would disburse the $700 billion in stages. The first $250 billion would be issued when the legislation is enacted while another $100 billion could be spent if the president decided it was needed. The remaining $350 billion would be subject to congressional review, said a statement issued by Pelosi's office early on Sunday morning.
To further protect taxpayers, institutions selling assets under the plan would issue stock warrants giving "taxpayers an ownership stake and profit-making opportunities with participating companies," Pelosi's statement said.
The plan also would let the government buy troubled assets from pension plans, local governments and small banks.
In response to a clamor for limits on executive pay, no executives at participating companies could get multi-million-dollar severance pay — known as golden parachutes — while CEO pay that encourages excessive risk-taking would be limited.
An oversight board of top officials, including the Federal Reserve chairman, would supervise the program, while its management also would be under close scrutiny by Congress' investigative arm and an independent inspector general.
The program also calls for "meaningful judicial review of the Treasury secretary's actions," the statement said.
Finally, the government could use its power as the owner of mortgages and mortgage-backed securities to help more struggling homeowners modify the terms of their home loans.
Rank-and-file members of the House and Senate are expected to be briefed on details of the rescue package with the goal of passing legislation either Sunday or Monday for President Bush to sign into law.
Democratic presidential candidate Barack Obama on Sunday said he is likely to back the bailout proposal.
"My inclination is to support it," Obama told CBS's Face the Nation.
Obama said that, if elected, he would order a thorough review of the financial industry rescue plan and move to upgrade industry regulations. Obama also called again for passage of an emergency economic stimulus to create jobs, mainly by funding domestic construction projects.
When asked if he would support the bill, GOP nominee John McCain replied: "Hopefully yes."
"This is something that all of us will swallow hard and go forward with," McCain said on the ABC television network. "The option of doing nothing is simply not an acceptable option."
Turbulent financial markets made the negotiations over the bailout more urgent, as big banks in recent weeks teetered, collapsed and refused to lend money to each other.
Regulators seized Washington Mutual Thursday in the biggest bank failure in U.S. history, selling its assets to JPMorgan Chase . Washington Mutual filed for bankruptcy Saturday with $8 billion in debt.
Meanwhile, Wachovia , the sixth-largest U.S. bank by assets, began merger talks with potential partners after a 27-percent drop in its shares Friday. Executives from Citigroup are expected to meet today to discuss a possible acquisition of the bank.
Investors worried about a contagion effect as the crisis showed signs of spilling into Europe, where Belgian-Dutch financial group Fortis is mulling a sale of part or all of the company. The firm fired its interim chief executive late last week after liquidity concerns pushed its shares to a 14-year low.
In London, regulators will nationalize troubled mortgage lender Bradford & Bingley, the BBC reported.
The bailout deal capped a tumultuous week as news out of Washington made a deal look imminent at one moment, and then out of reach the next.
Lawmakers announced a deal in principle on Thursday, but conservative Republicans in the House balked, saying taxpayers should not be put on the hook for a private market failure.
Negotiations were thrown into further disarray as Republican presidential candidate John McCain suspended his campaign and rushed back to Washington, leading Democrats to charge that he was playing politics with the crisis.
Both McCain and Democratic nominee Barack Obama were in touch with congressional negotiators as talks hurtled toward a conclusion late on Saturday.
In the end, House Republicans won support for a provision that would create a privately funded insurance program for mortgage-backed securities, congressional aides said.
Democrats jettisoned proposals that would have put money into a trust fund for affordable housing and would have allowed judges to alter the terms of mortgages for bankrupt borrowers, according to aides.