The new overseer of the U.S. government's $700 billion bank bailout fund said on Wednesday an intently awaited program to cleanse toxic assets from banks' balance sheets should soon be ready to roll out.

Herb Allison told a Congressional Oversight Panel there has been progress in developing public-private partnerships to pair investors and the government in buying poorly performing assets from banks.

I'm confident that very soon we'll be launching partnerships, Allison said.

In a wide-ranging exchange of questions and answers, Allison said there were signs the U.S. economy was on the mend but stressed there could be no let-up on recovery efforts.

Our financial system and our economy remain vulnerable, with unemployment still rising, house prices falling and pressure on commercial real estate continuing to build, he said.

Allison also said that Treasury will soon publish guidance on how to value warrants that the government received when it injected capital into banks and that the banks are able to buy back as they regain stability and pay back the capital.

We'll soon be publishing on our website our approach to valuing the warrants and if it comes to that, disposing the warrants, he said.

The warrants to buy shares were intended to provide a means for taxpayers to share in the profits of banks that benefited from being able to draw on taxpayer-funded help.

Allison was confirmed by the Senate last week as Treasury assistant secretary to head the Treasury Department's Office of Financial Stability, which manages the Troubled Asset Relief Program, known as TARP. Congress approved TARP last year under the former Bush administration.

He noted that about 30 companies that received cash injections from the government have repaid $70 billion and added that about $5 billion has been received in dividends on stock the government got in return for investing in firms.

Allison, a former chief executive of mortgage finance company Fannie Mae, replaces Neel Kashkari, who was appointed to head TARP by the former Bush administration. Kashkari carried over in the Obama administration until early May.

OPTIMISTIC ABOUT BANKS

Allison expressed confidence that so-called public-private partnerships to cleanse toxic assets from banks' balance books will soon be launched. The partnerships are intended to pair private investors with the government to finance purchases of poorly performing mortgages and other holdings that might then be sold in the future at a profit while relieving banks of carrying them.

We've made a great deal of progress, Allison said. It shouldn't be long before we announce the first stage in that program.

Responding to questions, Allison said it was heartening to see increases in banks' stock prices as well as rising confidence among financial sector participants since the government reported the results of stress tests on the adequacy of their capital levels.

There are encouraging signs that the banking industry has been strengthening itself significantly, he said.

In May, the government announced the results of in-depth stress tests on the 19 largest U.S. banks. The tests were designed to gauge how the firms would weather more adverse economic conditions.

Since then, many banks have been aggressively raising capital by selling stock.

Allison avoided a direct answer when asked whether the government might undertake the high-profile process of stress testing again, but with even tougher economic assumptions.

He said the administration's regulatory reform plan calls for regular, ongoing stress tests of the nation's biggest banks, but those tests will likely be part of the private supervisory process.

Allison said he will review the controls over the use of the taxpayers' money that funds TARP and try to make sure its operations are transparent so that people can see what is being done and why.

(Reporting by Karey Wutkowski and Glenn Somerville; Editing by Jan Paschal

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