Banks bailed out by the federal government have returned about 75 percent of the money, and the program eventually will generate a positive return to taxpayers, Treasury Secretary Timothy F. Geithner told a government watchdog panel Tuesday.
But the Congressional Oversight Panel for the $700 billion Troubled Asset Relief Program (TARP) criticized Mr. Geithner for not doing enough to help small and regional banks, many of which are suffering big losses on commercial real estate loans.
Government investments in troubled financial institutions so far have generated taxpayers $21 billion in income from dividends, sales of warrants and stock, and fees from cancelled guarantees, Mr. Geithner said.
“Because of our actions, the financial system is in a much stronger position,” the secretary said while testifying before the panel. “By acting quickly and with overwhelming force, we were able to avoid a much deeper recession, a much more costly recession.”
Treasury’s overall cost estimates for TARP continue to decrease. The department projects the program’s overall costs at $105 billion - down from an August 2009 estimate of $341 billion.
The prospect that the troubled U.S. automobile industry will repay its federal bailout loans also has improved in recent months, Mr. Geithner said. But the government’s $182 billion investment in American International Group (AIG) likely will result in a loss, he said.
TARP, created by Congress in 2008 in the wake of a near collapse of Wall Street, set aside $700 billion for troubled financial institutions in an attempt to avoid a catastrophic economic meltdown. Treasury to date has doled out $386 billion in the program, which is scheduled to expire in October.
“We’re on track to shut this program down as scheduled, and we expect to do so without having used hundreds of billions of dollars in authority that Congress gave us initially,” Mr. Geithner said.
The panel’s chairwoman, Elizabeth Warren, said small and regional banks stand to lose up to $300 billion on commercial real estate loans during the next few years. Those losses, she said, could cause some banks to fail.
“It seems clear that Treasury’s efforts to reduce mortgage foreclosures is not working,” said Ms. Warren, a Harvard University law professor. “As TARP end day approaches, this panel must know whether Treasury has carefully monitored the financial system to assess potential risks.”
Mr. Geithner said about $11 billion of TARP investments remain with banks with fewer than $10 billion in assets.
He added that the Treasury will continue to spend TARP money “to promote and maintain stability in the housing market” and to improve access to credit for families and small businesses. He also urged Congress to pass a proposed new small-business lending program.
“We are not prepared to leave future generations of Americans vulnerable to the devastating affects of financial crisis,” he said. “They should never again have to be asked to bail out a financial system in crisis.”