secretary Timothy Geithner defended financial policies initiated under the Troubled Asset Relief Program (TARP), linking them to improved economic conditions over the past year.
"They continue to help responsible, but at-risk Americans hold onto their homes and to repair essential channels of new credit," he told the Congressional Oversight Panel (COP) on Tuesday, according to written testimony
For example, Geithner said delinquencies for many loan categories appear to have peaked, and home prices are showing signs of stabilization. He warned, however, that "significant challenges" remain, including elevated charge-offs for residential and commercial loans and high projections of bank failures.
"Despite offering relatively low borrowing costs, banks continue to report falling loan balances," Geithner said. "To a significant degree, this reflects a natural and healthy adjustment as borrowers and lenders de-leverage after a period of aggressive credit expansion. But it does mean that many consumers and businesses are still finding it difficult to get new credit."
He said the Obama Administration's efforts through TARP are partly responsible for financial system being stronger now than in 2009.
He said the Treasury's support for the government-sponsored enterprises (GSEs) and $1.25trn in purchases of their mortgage-backed securities kept mortgage rates at historical lows for borrowers. Geithner also noted the Term Asset-Backed Loan Facility (TALF) and the Public-Private Investment Program (PPIP) contributed to a recovery in security prices.
TALF has supported $58bn of asset-backed securities, along with $12bn of securitization for commercial mortgages. Using a combination of TARP and private capital, Public-Private Investment Funds purchased $12bn of securities from banks.
"Prices for some of the most distressed securities backed by residential mortgages have increased 70% since last March, while prices for some securities backed by commercial properties have improved by roughly half over the same period," Geithner told the COP.
Not only has TARP housed many of the programs Geithner said are responsible for improved financial stability, but the cost of TARP itself is decreasing. He noted that in August 2009, TARP was projected to increase Federal deficits by $341b. That number has since been reduced to $105bn.
Financial firms that received TARP funds are also helping the Treasury recover bailout money. The volume of funds repaid into TARP from financial firms that received capital boosts now exceeds the volume of funds outstanding, the Treasury said earlier this month
"We are well on the way to winding down TARP," Geithner said.
He noted the Treasury plans to dispose of investments as soon as practicable in order to return TARP funds and reduce the federal debt. The Treasury will aim to dispose of those investments in a way that minimizes the impact on financial markets and the economy.
Wherever possible, Geithner said, the Treasury will encourage private capital to replace government investments. Additionally, he said the government will not intervene in the day-to-day management of private companies that received federal aid through TARP.
Write to Diana Golobay