Treasury Secretary Timothy Geithner on Thursday said that a bailout for banks was steadying the financial system but care must be taken to ensure that normal market forces are allowed to operate.

While TARP (the Troubled Asset Relief Program) is proving effective at improving the immediate stability of the financial system, the scope of the issues this administration and this department face ... include striking the delicate balance between intervention and allowing market participants latitude to operate, he said in prepared remarks for delivery to a U.S. House of Representatives appropriations subcommittee.

Geithner laid out a tough agenda for Treasury, including devising a new and more effective regulatory structure and deciding what form government-sponsored enterprises Fannie Mae and Freddie Mac should assume in the future.

He said that, once economic recovery is under way, the government will have to move swiftly to ratchet down deficits that are swelling as the government pumps hundreds of billions of dollars of capital into banks.

We must get our fiscal house in order or risk having government borrowing crowd out productive private investment, Geithner said.

(Reporting by Glenn Somerville; Editing by Theodore d'Afflisio)