Financial institutions that received bailouts through the Troubled Asset Relief Program (TARP) will soon have repaid nearly half of taxpayer funds received, according to a letter from US Treasury Department secretary Timothy Geithner to Speaker Nancy Pelosi (D-Calif.) and Senator Harry Reid (D-Nev.) In the letter, Geithner extended TARP to Oct. 3, 2010, although he said he does not expect to deploy more than $550bn of the program's $700bn potential. Geithner said the Treasury expects to recover all but $42bn of the $364bn in TARP funds disbursed in fiscal year 2009. He also expects $175bn of repayments by year-end 2010. "The combination of the reduced scale of TARP commitments and substantial repayments should allow us to commit significant resources to pay down the federal debt over time and slow its growth rate," he said. He confirmed TARP is expected to cost taxpayers at least $200bn less than an August projection, as HousingWire previously reported this week. The Capital Purchase Program, the branch that facilitated most TARP investments in banks, allocated $240bn prior to the Obama Administration's arrival in office, Geithner said.  Since January 20, the Treasury committed another $7bn to banks, mostly small institutions. Geithner added that major US banks subject to "stress tests" earlier this year raised over $110bn in high-quality capital from the private sector. Banks will soon have repaid $116bn of TARP funds, he said. The Treasury's commitments through TARP in 2010 will be limited to mitigating foreclosure, facilitating small business lending and supporting securitization markets through the Term Asset-Backed Securities Loan Facility (TALF). Geithner said the Treasury will not use remaining TARP funds unless necessary to respond to an immediate economic threat. Geithner's announcement follows the Congressional Oversight Panel's (COP) December report on TARP (available to download here) concluding weaknesses remain in the financial system despite the program's efforts toward stabilization. "Although the government’s response to the crisis was at first haphazard and uncertain, it eventually proved decisive enough to stop the panic and restore market confidence," COP said. But problems remain, with credit remaining tight, bank failures continuing on a weekly basis, foreclosures rising and joblessness escalating. Markets still depend on government support, COP said, as "an implicit government guarantee of major financial institutions...poses a difficult long-term challenge" as the government considers exit strategies. Write to Diana Golobay.