WASHINGTON (Bloomberg) — The Federal Deposit Insurance Corp. may manage the so-called bad bank that the Obama administration is likely to set up as it tries to break the back of the credit crisis, two people familiar with the matter said.

US stocks gained, extending a global rally, on optimism the bad-bank plan will help shore up the economy, driven by the climb of financials.

FDIC chairman Sheila Bair is pushing to run the operation, which would buy the toxic assets clogging banks' balance sheets, one of the people said. Bair is arguing that her agency has expertise and could help finance the effort by issuing bonds guaranteed by the FDIC, a second person said. President Barack Obama's team may announce the outlines of its financial-rescue plan as early as next week, an administration official said.

"It doesn't make sense to give the authority to anybody else but the FDIC," said John Douglas, a former general counsel at the agency who now is a partner in Atlanta at the law firm Paul, Hastings, Janofsky & Walker. "That's what the FDIC does, it takes bad assets out of banks and manages and sells them."

The bad-bank initiative may allow the government to rewrite some of the mortgages that underpin banks' bad debt, in the hopes of stemming a crisis that has stripped more than 1.3 million Americans of their homes. Some lenders may be taken over by regulators and some management teams could be ousted as the government seeks to provide a shield to taxpayers.

Bank seizures are "going to happen", Senator Bob Corker, a Tennessee Republican, said in an interview after a meeting between Obama and Republican lawmakers in Washington yesterday. "I know it. They know it. The banks know it."

Laura Tyson, an adviser to Obama during his campaign, said banks need to be recapitalized "with different management" so they start lending again. "You find some new sophisticated management unlike the failed management of the past," Tyson, a University of California, Berkeley, professor, said at the World Economic Forum conference in Davos, Switzerland yesterday.

Still, nationalisation of a swath of the banking industry is unlikely. House Financial Services chairman Barney Frank said yesterday "the government should not take over all the banks". Bair said earlier this month she would be "very surprised if that happened".

Obama is under increasing pressure to drastically revamp the $700 billion Troubled Asset Relief Programme for the ailing industry. While setting up a bank to buy underwater assets is emerging as a favoured approach, it could drive up the cost of the rescue in excess of $1 trillion.

Frank told reporters that he would be open to expanding the size of the bailout if the Obama administration "can demonstrate the need for it". Senate Banking Committee chairman Christopher Dodd said yesterday he wants to hear more about the bad-bank idea when he meets in coming days with newly installed Treasury Secretary Timothy Geithner.

Geithner, who was sworn in earlier this week, has pledged to unveil a "comprehensive plan" for responding to the crisis that will aid financial companies as well as small businesses, cities unable to borrow money and families facing home foreclosure.

Billionaire investor George Soros said in Davos yesterday the plan to buy toxic assets won't be enough to get financial institutions to start lending again.

"It's not the measure that would turn the situation around and enable the banks to lend," Soros said in a Bloomberg Television interview. "You are nationalising the debt and keeping the upside in private hands."

Robert Rubin, who was Geithner's boss as Treasury secretary in the late 1990s, warned that nationalising the banks outright has "some serious problems".

"You would have to find some way to insulate a nationalised financial institution from political pressure," Rubin, who left as senior counsellor to Citigroup earlier this month, said late in a panel discussion in New York. "You don't want lending practices, I don't think, of financial institutions subject to political pressure."