Barney Frank, the powerful Democratic chairman of the House financial services committee, issued a stark warning at a breakfast meeting with reporters in Washington yesterday. If lawmakers and the administration failed to agree on new housing legislation, the US recession would be 'longer and deeper' than expected. Financial Times

The corridors of Capitol Hill have emerged as the critical venue for the shaping of economic policy and Mr Frank, veteran congressman from Massachusetts, is one of the key actors in the legislative drama.

Along with Chris Dodd, chairman of the Senate banking committee, Mr Frank is proposing a highstakes government intervention in the US mortgage market, using up to $400bn (£202bn) in guarantees backed by taxpayers.

The negotiations over the legislation, which was moving through Mr Frank's committee yesterday, are expected to become tougher in the coming weeks.