RTTNews - The Chairwoman of a panel set up by Congress to oversee the Treasury Department's financial system rescue program called Tuesday for additional measures to ensure that taxpayers get a fair deal as financial institutions pay back federal funds.

The Treasury Department announced Tuesday that it would allow 10 major banks to buy back preferred stock and warrants invested by the department to shore up the financial system.

If the banks choose to buy back the investments, worth $68 billion, the Treasury would either use the money to reduce its borrowing or hold it in reserve to address other financial crises.

These repayments are an encouraging sign of financial repair, but we still have work to do, Secretary Tim Geithner said in a written statement.

However, Elizabeth Warren, chairwoman of the Congressional Oversight Panel for the Troubled Assets Relief Program, or TARP, said there were still questions about the appropriate value of the government investments.

Testifying before the Congressional Joint Economic Committee, Warren said that initial indications showed that the Treasury was significantly underpaid in the value of its capital infusions.

Treasury received securities that were worth substantially less than the amounts it had paid in return. In all, Treasury overpaid by an estimated $78 billion, Warren said. For each $100 Treasury invested in these financial institutions, it received on average stock and warrants worth only about $66 at the time of the transaction.

She added, It will be especially important going forward to have independent valuations and transparency as many financial institutions intend to repay TARP funds and buy back their warrants.

Warren said that the oversight panel would make a more detailed inquiry into the issues surrounding the warrants in its July report to Congress.

Treasury will be making many important policy choices as it negotiates the sale of these warrants, including timing, procedures, terms, and pricing for the redemption by banks, she said. We will take up these issues in our July report.

She added, We can review these transactions and we've made clear that we will.

Warren also stressed that her panel has seen significant changes in the way the Treasury Department handles the funds under the TARP program since the oversight panel took up its job.

The nature of the economic crisis has changed over the past seven months, she said. We try to be as responsive as we can, as nimble as we can.

She added, Treasury is not operating in the same way it was before.

Warren was also clear that Congress would need to establish a new framework of regulations for the financial industry to replace the Glass-Steagal act, which was initially designed to ensure that banks and investment firms were kept separate but was subsequently eased by Congress.

How do we find a way to have certain kinds of financial institutions . be secure? she asked. How do we separate that from something that can take risks and frankly be allowed to fail?

She added, That's the issue for Congress in it's systemic risk regulation. . In a changed world we're going to have to have a new version.

Separately, he Congressional Oversight Panel issued a report Tuesday offering its approval of the stress tests but suggesting that continuing the tests might be warranted as long as banks continue to need additional capital and the economy continues to struggle. However, they also advised against overuse of or too much reliance on the tests.

While no one should gainsay the potentially positive results of the tests, the report said, it would be equally unwise to think that those results reflect a diagnosis of all of the potential weaknesses or create a necessarily sufficient buffer against future reverses for the banking system.

Members of the panel warned lawmakers that the spike in unemployment in May, up to 9.4 percent, is worse than the most adverse case scenario and could warrant another round of testing.

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