(CNN) -- U.S. Treasury Secretary Henry Paulson said golden parachute payments would be banned and the salary deals of bankers "clawed back" as part of the government's $250 billion bailout of the financial sector.
U.S. President George W. Bush announces his government's bank bailout plan.
Meanwhile, U.S. President George W. Bush on Tuesday of a $250 billion bailout plan to help stabilize the financial system.
In Washington, Bush said the Treasury would buy into banks in return for shares using authority granted in the country's $700 billion bailout bill.
However, Paulson stressed taxpayers would get a return on their money and banking excesses would be brought to an end.
"Institutions that sell shares to the government will accept restrictions on executive compensation, including a clawback provision and a ban on golden parachutes during the period that Treasury holds equity issued through this program," he said.
The world's sharemarkets climbed again after European governments Monday announced bank bailouts worth more than $1 trillion and in anticipation of the U.S. bailout. Watch market prices
The Dow Jones industrial average surged 363 points in early trading after Bush and Paulson spoke before dropping back and eventually closing down by 76 points, or 0.82 percent.
Bush said the measures taken in Europe were right, and had brought stability to the system. Watch the European Central Bank chief's assessment »
"This new capital will help struggling banks to fill the hole filled by crisis during the time we are in," Bush said. "This is a short-term measure to insure the viability of America's banking system." Watch Bush announce the plan »
He also announced that the Federal Deposit Insurance Corporation (FDIC) would "temporarily guarantee most new debt" issued by banks.
"This will address one of the central problems plaguing our financial system -- banks have been unable to borrow money and that has constricted their ability to lend to consumer and businesses," Bush said.
"When money flows freely between banks, it will make it easy for Americans to borrow money for homes and cars."
The government, through the FDIC, would also immediately and temporarily insure non-interest-bearing transaction accounts which were used mainly by small businesses "to cover day-to-day operations."
"By insuring every dollar in these accounts, we will give small business owners piece of mind and bring greater stability to the banking system," Bush said.
Governments have rushed to pump capital into banks after a series of large failures left the financial system teetering on the edge of insolvency.
Banks have stopped lending to each other and customers for fear they will not be able to recoup debts and over concerns that many institutions are still hiding massive sub-prime mortgage losses. Watch Nobel prize winner praise UK plan »
Paulson said the government would get preference shares in return for its investment.
"Nine large financial institutions have already agreed to participate in this program. They have agreed to sell preferred shares to the US government, on the same terms that will be available to a broad array of small and medium-sized banks." Watch more on the bailout funding »
According to reports banking giants Citigroup, Bank of America, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley and Merrill Lynch would be among those to receive funding.
Federal Reserve Chairman Bernanke said: "I strongly believe that the application of these tools, together with the underlying vitality and resilience of the American economy, will help to restore confidence to our financial system and place our economy back on a path to vigorous, healthy growth."
Markets in Europe saw big early gains drop back in afternoon trading. However, London's FTSE, the Paris CAC 40 and Frankfurt's DAX closed between 2.7 and 3.3 percent higher.
Across the Middle East markets were up between 6.5 and 11 percent.
Earlier, Japan's Nikkei 225 posted a record 14.15 percent gain. South Korea's KOSPI index gained 6.1 percent and Australia's All Ordinaries picked up more than 4 percent. Watch the Nikkei Index bounce back »
Jesper Koll, of Tantallon Capital Research in Tokyo, said: "The system is starting to work. We can see that credit markets are starting to stabilize."
Meanwhile Iceland's stock exchange reopened Tuesday for the first time since trading was suspended last Wednesday, with a value 76 percent lower than at its close value last week.
Icelandic officials cautioned, however, that the new value reflected the absence of the three big banks that were nationalized last week and which represented 80 percent of Iceland's stock market.
Taking that into account, exchange spokeswoman Kristen Johannsdottir said the market was down only 2 percent in early trading.
|Most Viewed||Most Emailed|