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The Baltimore Sun

WASHINGTON -The White House raised the prospect yesterday that the price tag for bailing out the nation's financial system could more than double to nearly $1.5 trillion.

President Barack Obama's 2010 budget outline, released yesterday, warns that, should economic conditions worsen, an additional $750 billion could be required on top of the $700 billion financial rescue fund authorized by Congress last fall.

"We hope that it will not be necessary," Peter R. Orszag, director of the Office of Management and Budget, said of doubling the fund. "We have no plans to go to Congress at this point to ask for additional money."

Highlighting the industry's problems, the government reported yesterday that banks and savings institutions insured by the Federal Deposit Insurance Corp. collectively incurred a net loss of $26.2 billion in the last three months of 2008, the first such quarterly loss since 1990.

Obama's budget outline for the fiscal year beginning Oct. 1 also calls for greater spending on oversight of the financial markets, with budget increases of 13 percent for the Securities and Exchange Commission and 44 percent for the Commodity Futures Trading Commission. In addition, the outline says more money would be provided to the Justice Department to investigate mortgage fraud and other financial activities, although an amount isn't specified.

Some lawmakers have called for boosting regulatory enforcement efforts, particularly at the SEC, which has been sharply criticized for failing to identify Bernard L. Madoff's alleged Ponzi scheme.

SEC chief Mary L. Schapiro said the additional money for the agency in the 2009-2010 budget would allow it to increase its staff and use new technology "to pursue risk-based approaches that would better detect fraud and ensure stronger oversight of the nation's securities markets."

But the main focus of the government's response to the financial crisis continues to be stabilizing the banking industry. The Treasury Department began so-called stress tests of the nation's largest banks on Wednesday to assess whether they could survive two more years of severe economic stress.

Such a worse-than-expected scenario was behind the decision to include the "contingency reserve" in the budget.

Analysts expressed little surprise that the cost of the bailout might top $1 trillion, in part because some of the money has been used for other purposes, such as assisting automakers and reducing home foreclosures.

"You just look at how quickly the government went through the first $350 billion. ... Look at the scale of the problems in the financial sector now," said Brad W. Setser, an economist at the Council on Foreign Relations. "I think it's probably in the ballpark of what's needed."

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