US Senate Set To Pass Financial Rescue Package, Tax Breaks

WASHINGTON --The U.S. Senate is expected to approve Wednesday evening a $700 billion financial-rescue package aimed at ridding the banking system of its rotten mortgage assets.

The legislation is based on the package the House of Representatives narrowly defeated on Monday, but includes sweeteners designed to coax House skeptics to support the rescue after stock markets plunged in reaction to the bill's failure.

In a bid to cast the rescue as more friendly to Main Street, the Senate legislation would temporarily raise the Federal Deposit Insurance Corp. deposit insurance limits on most bank accounts to $250,000 from $100,000, according to a text obtained by Dow Jones Newswires.

It would also include language to shield middle-class taxpayers from being hit by the alternative minimum tax, as well as a Senate version of a package of popular tax incentives on renewable energy and other business tax breaks.

"I think the FDIC issue helped our members," a Republican aide told Dow Jones. "Some of the no votes seem to have a small case of buyers' remorse after hearing from constituents watching their retirement accounts take a beating."

The package is expected to pass the Senate easily, while its prospects in the House, where opponents to Monday's rescue package ran the ideological gamut, are less clear. The Senate is expected to vote after 7:30 p.m. EDT, after sundown on the Jewish New Year.

Tying the tax legislation to the financial rescue provides an endgame strategy for the congressional session likely to appeal to lawmakers seeking to avoid a "lame-duck" session after the November elections. Meanwhile, the temporary increase in deposit insurance limits adds a populist tinge to the bailout.

But otherwise, the legislation largely mirrors the bipartisan plan that has aroused such contempt from rank-and-file House members. The bill failed on a 228-205 vote, stunning the Bush administration and leaders from both parties, and causing stock markets to plunge around the world.

A Senate Republican leadership aide said that provisions that were added to the bill were specifically chosen to keep additional defections low. "You'll notice that we didn't put anything on there that was partisan," the aide said. "They are the opposite of poison pills. They're vitamins."

Rep. Peter DeFazio, D-Ore., an opponent of the bill who has proposed a new package without an asset-purchase element, conceded that the new provisions could help move "no" votes into the "yes" column.

"There were some people who were already having their arms twisted by leadership, and so, you know the changes are really immaterial," DeFazio said. "It may give some people an excuse to change their votes."

Still, House lawmakers who opposed the legislation were searching on Tuesday for alternatives to a costly financial rescue.

A group of House Democrats led by DeFazio unveiled an alternative plan dubbed the "No Bailouts Act." Meanwhile, dozens of House lawmakers from both parties signed on to a letter to Securities and Exchange Commission Chairman Christopher Cox asking for an immediate suspension of mark-to-market accounting rules.

The banks are blaming the rules, which require companies to use market prices when valuing assets and securities, for eroding their capital cushions.

The Senate legislation aims to give the FDIC authority to lift its deposit insurance limits without further taxing banks. Specifically, it prohibits the FDIC's board from considering the temporary increase when they set premiums on banks for the fund. The legislation would also give the FDIC unlimited authority to borrow from the Treasury if needed to fund the higher limits.

The Senate legislation would lift the federal debt ceiling to $11.3 trillion to allow the Treasury to purchase $700 billion of a broad range of soured assets from financial firms. It would also require the Treasury to establish a program to insure banks' troubled assets, an idea pushed by House Republicans concerned about limiting the bailout's cost to taxpayers.

In exchange for the government aid, financial firms would have to submit to some curbs on executive compensation. So-called "golden parachutes" for retiring executives would be banned, and participants would be forced to "claw back" bonus pay from executives that was based on faulty information on company performance.

The Treasury would also receive warrants giving it the right to acquire nonvoting common stock or preferred stock in firms benefiting from the bailout.

The legislation requires the Treasury to work to limit foreclosures on the mortgage loans it purchases.

The Treasury would not be allowed to use the entire $700 billion purchasing authority at once. Just $350 billion would be immediately available, and Congress could block the use of the remaining $350 billion.

The Treasury program would be subject to oversight by a congressional panel as well as a Financial Stability Oversight Board. The board would be comprised of the Federal Reserve chairman, the Treasury secretary, the Federal Housing Finance Agency director, the SEC chairman and the secretary of Housing and Urban Development.

An inspector general would have power to audit the activities and financial controls of the program.

The bill would also reaffirm that the SEC has authority to suspend mark-to-market accounting rules and require the commission to submit a study on the effect of mark-to-market rules no later than 90 days after the bill's enactment.

-Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com