WASHINGTON (AP) — Treasury Secretary Henry Paulson yesterday expressed regret for the many errors made that led to the biggest financial crisis in seven decades, but he insisted the US administration is pursuing the correct course now to end the debacle.

"We're not proud of all the mistakes that were made by many different people, different parties, failures of our regulatory system, failures of market discipline that got us here," Paulson said in an interview on Fox Business Network.

But he said he had "no regrets" about the steps the government is taking now to address the problem.

"We will mitigate the impact on the real economy and we'll get this financial system working again," he said.

Paulson rejected criticism about the new approach the administration announced on Tuesday to have the government purchase $250 billion in stock from private banks, in effect partially nationalising the banking system.

He said the initial stock purchases would total $125 billion with the money going to the nine largest US banks, whose executives were summoned to a meeting with Paulson at the Treasury on Monday where he applied pressure to make sure they all participated.

Paulson said it was essential that the nine banks, which hold 50 percent of the US bank deposits, to participate so that there would not be a stigma attached to the programme. He said it would encourage other banks who were in greater need of capital to take part.

"When there's fear in the marketplace and there's concern in the marketplace, no one wants to raise their hand and say, I need capital," Paulson said.

Paulson said there had been an interest "from a good number of other banks" for the other $125 billion the government has to spend to purchase bank stock. Potentially thousands of banks could be eligible for a portion of those funds.

The $250 billion is part of the $700 billion bailout programme for the financial system that Congress passed on October 3 in an effort to get banks to resume more normal lending.

As the plan was rushed through Congress, Paulson and other officials stressed that the money was needed to buy up bad loans and mortgage-backed securities that are sitting on the books of banks and making them reluctant to make new loans.

Paulson said yesterday that the programme's emphasis was changed after the legislation passed when market developments showed how critical it was to quickly shore up bank balance sheets with fresh capital. He said government was still moving ahead with the programme to buy bad assets and the administration has allocated $100 billion for that portion of the programme.

In a separate interview on Bloomberg television, Paulson refused to rule out the possibility that some of the $700 billion programme could be used to shore up giant hedge funds, largely unregulated pools of investments, or insurance companies. But he said that he was focused now on dealing with the problems at banks.

"This programme is for banks and thrifts," he said, adding later, "Right now, we're focused on financial institutions that are regulated financial institutions."