Bailout treated with caution | UK banks could benefit | US critics gloat | Gerard Baker | Message for Darling | Q&A - the bailout

A deal that would cost each American taxpayer $5,300 to rescue the banking system and save the world economy from catastrophe was agreed in outline tonight.

Stock markets breathed a sigh of relief as congressional leaders heralded what would be the biggest bailout in history hours before a weekend deadline set by President Bush.

Partisan politics and November’s presidential election were threatening to complicate the $700 billion plan. Free-market Republicans on Capitol Hill insisted that they had yet to agree to the details. This prompted fears in Barack Obama’s camp that such opposition was being choreographed so that John McCain could be seen to deliver an eleventh-hour solution today.

Neither side wants to be seen to torpedo a deal that, it is hoped, will draw to a close the most turbulent period for the American stock market since the 1929 Wall Street crash. In the past ten days one investment bank has gone bust, the world’s biggest insurer has been nationalised and stock markets across the world gyrated wildly.

The plan would allow banks to dump toxic assets into a federal fund controlled by the US Treasury. British banks that have significant operations in the US would be able to take part.

Mr Bush and his Treasury Secretary, Henry Paulson, have been forced to back down on some key demands.

Lawmakers refused to hand over the $700 billion in one lump sum, which Mr Paulson had insisted was vital. Mr Paulson, a former chief executive of Goldman Sachs, was also forced to concede to caps on executive pay. In addition, it is thought that the Treasury will have the right to seize stakes in banks that benefit from the bailout in order to protect the interests of the American taxpayer.

The details emerged as Mr McCain and Mr Obama arrived at the White House to discuss the financial crisis with Mr Bush and congressional leaders. Mr McCain has been criticised for suspending his campaign and jeopardising tonight’s presidential debate to involve himself in the issue.

President Bush warned Americans that the country was facing a serious economic crisis unless a deal was agreed quickly. Gordon Brown will fly to Washington today for a hastily arranged meeting to discuss the issue.

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