Geithner: U.S. Making Progress, Challenges Still ExistTreasury Secretary Timothy Geithner says the U.S. is making headway in calming financial markets and should have a program to clean up toxic assets from banks' balance sheets up and operating by July.
He told the Senate Banking Committee the U.S. financial system is "starting to heal" after a period of severe trauma, crediting an array of emergency government programs for helping ease a crisis sparked by a surge in mortgage defaults.
But Geithner says the outlook remains fragile and the administration has to be cautious about how it uses the dwindling money left in a $700 billion financial rescue fund Congress approved in October.
"We still face a very challenging economic and financial environment, and we need to be careful to preserve substantial resources and flexibility to deal with future contingencies," he told the committee.
Geithner estimates $123.7 billion remain, but he said that reflected a conservative forecast that banks would repay just $25 billion they have received and adds that Treasury might not finance other programs as fully as it currently plans.
Geithner said financial companies are making changes to their operations in ways that will make them less vulnerable to shocks like the one they have gone through in the past year. "Leverage has declined, the most vulnerable parts of the non-bank financial system no longer pose the same risk, and banks are funding themselves more conservatively," he says.
While public focus has mostly been on big banks, including the 19 that underwent "stress tests" to see whether they needed to raise more capital, Geithner says small banks also will get an expanded chance to qualify for taxpayer aid.
Financial institutions now have six months to make themselves into bank holding companies that would qualify for aid, or to reapply for aid if they are already eligible.
Geithner also says a plan to attract private investors to buy distressed assets from banks by putting up government capital alongside private money would begin in the next six weeks.