NEW YORK: The US ushered in a new era in banking yesterday with plans to take ownership stakes in major financial institutions totaling as much as $250 billion. The latest measures are intended to stimulate interbank lending and the commercial paper markets, whose stagnation may have already pushed the US economy into recession.

Europe’s major economies showed signs of flagging output and falling business confidence, and experts warned of dangers ahead as US companies report shrinking third-quarter earnings. “This is an essential short-term measure to ensure the viability of America’s banking system,” US President George W. Bush said in a televised address. “These measures are not intended to take over the free market but to preserve it.”

Under a US Treasury plan, the government will buy preferred shares in qualifying financial institutions, with stakes in each limited to $25 billion.

US Treasury Secretary Henry Paulson said nine banks that he described as “healthy institutions” had agreed to accept government stakes for the good of the US economy — a government intervention unthinkable before the credit crisis.

“Government owning a stake in any private US company is objectionable to most Americans, me included,” Paulson said. “Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable.”

The Treasury will buy stakes in Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley and Bank of New York Mellon Corp, sources said. Media reports said State Street Corp and Merrill Lynch would also receive capital injections.

The money the government will use to take equity stakes in banks will come from a $700-billion financial bailout program originally approved by Congress to buy illiquid assets that were poisoning bank balance sheets.

Paulson did not hide his unhappiness with such a step, which came after repeated efforts by the Fed and Treasury to loosen up a fear-ridden banking system failed to restore normal lending. “We regret having to take these actions,” Paulson said.