Taxpayer losses from the U.S. government's $700 billion financial bailout fund will likely come in below the officially projected $105 billion as the economy recovers, U.S. Treasury Secretary Timothy Geithner said on Tuesday.
Stressing that the banking system was no longer a drag on growth, Geithner told the Congressional Oversight Panel that estimates of losses from the Troubled Asset Relief Program had fallen steadily, from $341 billion in August to just $105 billion now.
He said the final figure likely will be even less.
We view that as a conservative estimate, Geithner told the TARP watchdog panel. We expect it to fall further.
While Geithner said credit remains tight in some economic sectors, he said he saw no risk of chronic credit problems developing and said there would be no effort to extend the bailout program past its scheduled expiration in October.
We are working very hard to put this program to rest, put it out of its misery. It's not going to solve all the problems facing the country. It wasn't designed to, he said.
ECONOMY STILL HAS PROBLEMS
TARP and other programs aimed at pumping liquidity into the economy when crisis struck in 2007 and 2008 have helped stabilize the financial system, though Geithner conceded the economy still was going through an incredibly difficult period.
The $700 billion financial rescue fund was approved by Congress in 2008. It was initially intended to be used for buying up bad assets from banks, but officials quickly tapped it to invest taxpayer money in faltering banks.
The ultimate cost of the program will likely be a fraction of the $700 billion authorized by Congress, Geithner said. Soon, we will return hundreds of billions of dollars in unused TARP authority to limit future debt, and to free up additional resources to meet the long-term needs of our country.
Panel Chairman Elizabeth Warren cautioned that as many as 3,000 banks might be in peril because of over-exposure to bad loans in a weakening commercial real-estate sector and suggested Geithner was not being candid about the danger.
He responded that the best way to help them would be through Congress approving a proposed $30 billion small business lending fund to give smaller banks new capital and to encourage more lending to small businesses.
HOMEOWNER HELP INADEQUATE
Some panel members criticized the Treasury's efforts to help reduce home foreclosures, saying that programs intended to help them renegotiate loans were not working and banks were reluctant to offer breaks to troubled homeowners.
I do not believe that any of the banks that are at the center of this problem are doing an adequate job now of making up for the mistakes that they made and helping people get through this problem, Geithner said.
We are going to continue to put enormous pressure on them to try to make sure they are doing a better job ... in meeting those basic obligations to their customers, he added.
The government said on Monday that slightly more than one in 10 borrowers eligible for lower payments under the Obama administration's foreclosure relief program has received a permanent loan modification, while about one in three borrowers who started in the trial program had been kicked out.
In all, 340,459 borrowers have received a permanent loan modification, about 11 percent of the 3.2 million deemed eligible.
Geithner said banks that received TARP money have repaid about 75 percent of it and said taxpayers have earned about $24 billion through dividends, sales of warrants and stocks and fees from canceled guarantees.
But not all the investments will produce a profit.
TARP investments in AIG will likely still result in some loss, Geithner said, referring to the insurer that received $182 billion in taxpayer support.
He said there also will be losses on investments in GMAC, the former financing arm for General Motors Corp, although he said those losses will be less than anticipated last year.
(Additional reporting by Mark Felsenthal, Corbett Daly and David Lawder; Editing by Dan Grebler)