More banks will fail despite the US bailout package, Treasury secretary Henry Paulson has warned.

In comments last night updating Congress on the multi-billion dollar scheme, Mr Paulson said he remains “confident” the country can work through its problems.

However, he also warned the crisis is not over yet.

“One thing we must recognise – even with the new Treasury authorities, some financial institutions will fail,” Mr Paulson said.

“The Emergency Economic Stabilisation Act (EESA) doesn’t exist to save every financial institution for its own sake.”

Deposit insurance will increase to a temporary level of $250,000 and in the event of a bank failure, the FDIC will step in to make sure there is no risk to the banking system.

Mr Paulson also said the department has also appointed an interim team to implement the programme.

This weekend, Mr Paulson and other G-7 members are meeting to discuss ways of tackling the crisis.

“In addition, in consultation with Brazil, the G-20 President, I am calling for a special meeting of the G20 that will include senior finance officials, central bankers, and regulators from key emerging economies to discuss how we might coordinate to lessen the effects of global market turmoil and the economic slowdown on all of our countries,” Mr Paulson added.

Yesterday, both the Bank of England and the Federal Reserve cut interest rates in a co-ordinated move.