Oct. 6 (Bloomberg) -- Treasury Secretary Henry Paulson consulted with Federal Reserve Chairman Ben S. Bernanke as stocks slid worldwide and met with his team to set up the $700 billion program to shore up the financial system.

Paulson also spoke with New York Fed President Timothy Geithner and reached out to Wall Street executives, Treasury spokeswoman Brookly McLaughlin said in response to a question.

The discussions come as Fed and Treasury officials consider new ways of helping credit markets, where banks are hoarding cash and corporate short-term borrowing rates soared as bank bailouts spread through Europe.

Yields on overnight U.S. commercial paper jumped 0.94 percentage point to 3.68 percent, according to data compiled by Bloomberg that stretch back to January 1996.

The Treasury and Fed ``are consulting with market participants on ways to provide additional support for term unsecured funding markets,'' a category that includes commercial paper and other short-term financing, President George W. Bush's Working Group on Financial Markets said in a statement earlier today.

Stocks fell around the world on the first full day of trading after a $700 billion bank bailout plan was enacted Oct. 3. The Standard & Poor's 500 Index retreated almost 4 percent, extending the worst weekly slump since 2001, and Europe's Dow Jones Stoxx 600 Index had its steepest intraday decline since 1987.

`Paramount' Need

There is a ``paramount need for expeditious implementation'' of the Troubled Assets Relief Program, the Treasury also said today in a statement. Neel Kashkari, 35, an assistant secretary and Goldman Sachs Group Inc. veteran, was named to head the office that will run the TARP, the department said.

Anthony Ryan, the Treasury's top finance official, called on leading financial companies to step up their efforts to enhance investor confidence.

``We need the help of market participants,'' said Ryan, the Treasury's acting undersecretary for domestic finance, answering questions after a speech at a conference in New York today.

While monitoring markets, Paulson met with the team implementing the new TARP, McLaughlin said. The Treasury aims to buy illiquid assets such as home loans and mortgage-backed securities from banks and other financial institutions.

Bank Capital

Paulson also has the authority to provide banks with capital more directly. As the plan gets under way, the Treasury is considering a range of options, Ryan said in an interview on Bloomberg television.

``We want to think about the issues associated with the loans that are on the balance sheets, these mortgage loans, at many of our banks,'' Ryan said. ``We want to think about some of the securities and the mortgage-backed securities'' as well as ``other financial institutions that otherwise might need help in terms of capital.''

Kashkari, the new head of the bailout office, is taking up the post on an interim basis. The Treasury hasn't specified the length of Kashkari's tenure, or whether the White House would nominate him officially for the post to be confirmed by the Senate.

While the bailout was debated in Congress last week, Treasury officials told lobbyists that they also were considering some kind of broader market action in the next few weeks, while the asset purchase programs are being set up. Economists said this broad action could take the form of direct bank capital injections.

Money Markets

The government may have to, and should, recapitalize banks by buying preferred stock, said Columbia University Professor Charles Calomiris.

``I'm worried about the money markets, I'm worried about commercial paper, I'm worried about mutual funds,'' Calomiris said in an interview. ``You have to inject capital into the banking system. The best answer is the simplest answer.''

Treasury officials said last week it will take at least four weeks to set up its asset-buying mechanisms. To handle these purchases, the Treasury plans to hire two groups of asset- management firms to act as its financial agents, the department said today.

The selection process will include several rounds of discussions, the Treasury said. As yet, there are no firms prequalified to advance to the later rounds of talks with Treasury, spokeswoman McLaughlin said.

The Treasury said it was soliciting financial agents to provide three services to help implement the TARP program: custodian, accounting, auction management and infrastructure services; securities assets management services; and whole loan asset management services.

Selection Process

Any firm or individual interested must apply by 5 p.m. Washington time on Oct. 8, and the Treasury will announce the selection results by next week. More than one financial agent may be chosen in some cases, the department said in its statement.

One set of asset managers will handle securities, while another set will handle whole loans. Whole loan asset managers will handle products including residential mortgages, home-equity lines, second liens and commercial mortgages.

Asset managers for securities will handle products including prime, alt-A and subprime residential mortgage-backed securities, commercial mortgage-backed securities, and collateralized debt obligations.

The Treasury will announce its selection decisions on its Web site, the department said. The Treasury has previously said it would like to hire five to 10 asset-management firms, along with an in-house staff of about two dozen employees.

Participating firms will be expected to follow conflict-of- interest guidelines issued today. The guidelines allow the Treasury to seek non-disclosure agreements and other kinds of arrangements during the solicitation process.

The Treasury said it expects to pick firms on a speedy basis, ``due to the paramount need for expeditious implementation'' of Paulson's new powers.

To contact the reporters on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net; John Brinsley in Washington at jbrinsley@bloomberg.net

Last Updated: October 6, 2008 17:40 EDT