US Treasury Secretary Henry Paulson signaled the government may invest in banks as the next step in trying to resolve the deepening credit crisis. Paulson told reporters in Washington on Wednesday that legislation Congress passed last week to rescue financial institutions gave him broad authority that he intends to use, beyond just buying mortgage-related assets on banks' balance sheets. He indicated that an option available may be boosting companies' capital with cash infusions. “It is the policy of the federal government to use all resources at its disposal to make our financial system stronger,'' Paulson said. “We will use all of the tools we've been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size.'' Banks worldwide aren't raising enough capital to offset losses: while posting $592 billion of writedowns and losses during the crisis, they have added just $442.5 billion of new capital, according to data compiled by Bloomberg. The International Monetary Fund anticipates losses will more than double to $1.4 trillion. Paulson spoke two days before officials from the Group of Seven industrial nations gather in Washington for their first meeting since the financial meltdown accelerated last month. Hours earlier, the Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented coordinated effort to ease the economic effects of the credit freeze. Meanwhile, South Korea, Taiwan and Hong Kong cut interest rates a day after reductions by the US, Europe and China to stem damage from the global financial crisis.The Bank of Korea and Taiwan's central bank lowered their rates by a quarter of a percentage point and Hong Kong cut its benchmark to 2 percent.
