WASHINGTON (MarketWatch) -- Top U.S. financial officials emerged from a briefing with congressional leaders Thursday night with an agreement to work quickly toward a broad-ranging fix for the crisis roiling U.S. and world financial markets.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke briefed House and Senate leaders to hash out a solution to the massive downturn in global markets and the failure of several financial firms.

Treasury spokeswoman Brookly McLaughlin said in a prepared statement that Paulson, Bernanke and congressional leaders "began a discussion ... on a comprehensive approach to address the illiquid assets on bank balance sheets that are ... the underlying source of the current stresses in our financial institutions and financial markets."

The talks are expected to continue through the weekend, McLaughlin said. She offered no additional details.

Senate Majority Leader Harry Reid, D-Nev., said lawmakers could receive a detailed proposal from the Treasury and Fed within a matter of hours.

"We look forward to working closely with Congress to resolve this financial crisis and get our economy moving again," Bernanke said following the meeting.

"We're coming together to work for an expeditious solution, which is aimed right at the heart of this problem, which is illiquid assets on financial institutions' balance sheets," Paulson told reporters.

At issue is a proposal to create a new government entity that could take bad assets off of banks' and financial firms' balance sheets and sell them at auction, according to published reports.

The online edition of The Wall Street Journal, citing unnamed sources, reported that Treasury officials have been studying the creation of such an entity for weeks, "but have been reluctant to ask Congress for such authority unless they were certain it could get approved."

The Journal reported that the entity would not mirror the Resolution Trust Corp., which was created to address the savings and loan crisis in the 1980s. Rather than hold and sell the assets of failed banks as the RTC did, the new entity would "purchase assets at a steep discount from solvent financial institutions and then eventually sell them back into the market" through an auction, the Journal reported.

The Dow Jones Industrial Average DJIA, -0.47% closed 410 points higher Thursday on talk of a fix being hammered out in Washington.

Separately, the Securities and Exchange Commission intends to temporarily ban short-selling, the Journal reported Thursday night. It's unclear if the commission has approved the move, the Journal reported. SEC Chairman Christopher Cox attended the meeting on Capitol Hill Thursday.

The U.S. move would follow action by Britain's financial regulator, the Financial Services Authority, which banned short selling in financial stocks on Thursday.

Meanwhile, presidential candidates Sens. John McCain and Barack Obama laid out their own plans, with McCain calling for Cox's firing. Cox responded with a 10-point list of accomplishments to rebut McCain's charge that Cox's agency has been "asleep at the switch."

Sen. Charles Schumer, D-N.Y., earlier Thursday called for the creation of a new agency that would give capital to struggling financial companies in exchange for an equity stake in banks and also require banks to permit the refinancing of mortgage loans on primary residences.

"The Federal Reserve and the Treasury are realizing that we need a more comprehensive solution," Schumer said.

'One of the worst crises in recent memory'

Meanwhile, Democratic congressional leaders left the door open Thursday to legislative action before the end of the year to address the crisis on Wall Street, Congressional Quarterly reported.

Reid said Thursday that, "We are going to work any time it's necessary," CQ reported.

House Financial Services Chairman Barney Frank, D-Mass., also says Congress must consider whether a new entity is needed to take over troubled assets as the financial system reels from one of the worst crises in recent memory.

In the past week, a number of extraordinary developments stemming from the ongoing credit crisis have hammered financial markets.

Last Monday, the federal government was compelled to seize control of lending giants Fannie Mae FNM, and Freddie Mac FRE, -0.64% . The government agreed to invest up to $100 billion in each firm to keep them solvent, and to run them indefinitely.

Venerable brokerage Lehman Bros. LEH, then went into bankruptcy proceedings over the weekend, before agreeing to sell its stock-trading, underwriting and merger businesses to Barclays PLC. See related story.

On Monday, fellow troubled Wall Street giant Merrill Lynch & Co. MER, +27.69% hastily agreed to be sold off to Bank of America BAC, -1.32% in an all stock deal worth $50 billion. See related story.

And on Tuesday, the government seized control of floundering insurance giant American International Group AIG, -1.23% with an $85 billion loan that granted it a roughly 80% stake.

The reeling financial markets have also brought out a flurry of proposals from Obama and McCain, who are competing in a tight race for the White House.

With Election Day less than two months away, Obama is proposing a law that would inject capital into the financial system, provide liquidity to the markets and help families restructure their burdensome mortgages.

McCain is calling for a Mortgage and Financial Institutions trust, similar to the Resolution Trust Corp. created after the savings and loan scandals of the early 1990s to regulate the industry. See full story.

A small group of House Republicans, meanwhile, is urging the Fed and the Treasury against bailing out any more companies, saying the government's rescue of AIG and Fannie Mae and Freddie Mac raises concern about taxpayer risk.