Conditions in the U.S. economy are particularly difficult and more banks will fail before the current financial market crisis ends, Treasury Secretary Henry Paulson said Wednesday.
The $700 billion bank rescue package was not created to save every institution, Paulson said at a press conference.
Analysts have forecast a significant consolidation of the U.S. banking system over the next several years and believe the Paulson bailout plan will be a catalyst for change.
The bailout rescue plan allows Paulson to inject capital into struggling financial institutions. Asked what guidelines the government would use to decide winners and losers, Paulson demurred, saying that the safety of the entire system was the only consideration.
Paulson pleaded for market patience because the ongoing financial market turmoil will not end quickly despite Congress approving the $700 billion package, he said.
Paulson said he would not make a prediction on the time it would take the economy to recover.
"What I'm looking to do is to take all the steps we need to take to stabilize the financial system in order to mitigate the negative impact that a weakened financial system is having on our economy," Paulson said.
The downturn could be more severe and last longer than expected, Federal Reserve chairman Ben Bernanke said in a speech on Tuesday. See full story.
Financial ministers and central bankers from around the world will gather in Washington this weekend to discuss the ongoing crisis and further coordination to ease market stress.
Paulson threw cold water on suggestions from some analysts that the G7 would develop a joint proposal to combat the financial market turmoil.
He said it was more important for the G7 to stay in close touch during the crisis. But it did "not make sense" for the G7 nations to have identical policies at the moment, he said.
Comments from foreign leaders over the past week have shown that many blame the United States' lax regulatory standards for the crisis. They seem especially appalled that Paulson allowed Lehman Brothers to collapse.
This indicates that U.S. officials will have a tough time leading the effort to design a collective G7 strategy to end the turmoil.
Paulson defended the Lehman decision. "There was no buyer for Lehman Brothers," he said.