WASHINGTON - THE US Senate approved on Wednesday an unprecedented plan to rescue struggling financial institutions and avert an economic meltdown.

The plan was a much expanded version of proposals initially submitted by US Treasury Secretary Henry Paulson that called for the government purchase of US$700 billion of bad mortgage-related assets from financial institutions endangered by the collapse of the US housing market.

An earlier draft of the bill was rejected Monday by the House of Representatives, primarily due to opposition from conservative Republicans, sending the US stock markets into an historic tailspin and threatening to plunge the US economy into a deep recession.

The version adopted by the Senate included most of the earlier provisions, but added up to US$100 billion in tax break extensions for middle class families and businesses, elements designed to entice reluctant Republicans in the House of Representatives to support the measure.

The amended bill also raises the ceiling on federal insurance for bank deposits from US$100,000 to US$250,000, a move aimed at reassuring savers that their money is safe in banks and avoiding mass withdrawals.

Herewith the other main points of the proposal:

Bailout for troubled financial firms

Introduction of the rescue plan will be phased, beginning with an initial authorisation for the US Treasury to purchase immediately up to US$250 billion dollars in 'troubled assets'. At the request of the president, this can be increased to US$350 billion.

The plan gives Congress a veto power over purchases above that limit and sets a ceiling for all purchases of US$700 billion.

Gives taxpayers an ownership stake in companies that take advantage of the bailout, raising the possibility of the public making profits if market conditions improve or of recovering some assets if participating companies.

Eventual profits from the sale of government-owned assets will be used to retire federal debt, with a portion set aside for a federal housing authority.

If the sale of assets purchased under the plan does not fully cover the cost of the bailout within five years, the shortfall will be made up by financial institutions that benefited from the bailout.

Calls on the Treasury secretary to coordinate with foreign financial authorities and central banks about establishing similar rescue programmes.

Limits on pay and bonuses for executives

No 'golden parachutes' for CEOs or other executives who lose or leave their jobs at companies participating in the plan as long as the Treasury holds equity in those firms

Limits CEO bonuses or other compensation deemed to encourage unnecessary risk-taking.

Recovers bonuses paid based on expected gains that turn out to be false or inaccurate

Oversight of plan administration

Implementation of the plan by the US Treasury will be overseen by a board including the chairman of the Federal Reserve, the Treasury secretary and the chairman of the Securities and Exchange Commission - the Wall Street regulator.

A presence for Congressional watchdog the General Accounting Office at the US Treasury Department to oversee the programme and conduct audits.

Homeowner protection

Gives government the power to renegotiate terms of mortgages it purchases to ease pressure on homeowners facing foreclosure. -- AFP