The Obama administration has indicated for the first time that it will let some big banks repay their bailout cash early, estimating that at least $25 billion will come back to the government in the next year.
With that money, and at least $110 billion remaining in the $700-billion financial rescue fund, the Obama administration will have enough to pay for its economic initiatives without further action by Congress, Treasury Secretary Timothy F. Geithner said Tuesday in remarks before a panel overseeing the bailout program.
Geithner disclosed the new numbers as he defended the administration’s bailout efforts in his first appearance before the panel.
The Treasury secretary also lent some assurance to the stock market a day after it had been shaken by huge loan losses reported Monday by Bank of America Corp.
In his written testimony, Geithner said the vast majority of banks “have more capital than they need to be considered well-capitalized by their regulators.”
The Dow Jones industrials jumped 1.6%, and the Standard & Poor’s 500 index surged 2.3%, as each gauge erased almost half its decline recorded Monday.
Several financial institutions have indicated they want to return their federal infusions of capital, saying the assistance makes them appear in need of help when they aren’t or comes with onerous conditions such as restrictions on executive pay.
Geithner was questioned sharply Tuesday about recent comments indicating that even if some of the largest recipients of bailout money wanted to return the money, government officials might not allow it.
“If there are firms that wish to repay taxpayers their money . . . why wouldn’t you take the money back?” asked Rep. Jeb Hensarling (R-Texas), one of two lawmakers on the panel.
Geithner said that “nothing would make me happier” but that administration officials and bank regulators would need to weigh the potential effect on the economy.
“One is: Do the institutions themselves have enough capital to be able to lend?” he said. And the overall financial system must be working well enough to start pulling back the extra cushion that the bailout money provides, he said.
Geithner also told the panel that federal funding had helped stimulate consumer and business lending, but that more work was needed to revive an economy mired in recession.
“The lessons of financial crises [are] that early action, forceful action, sustained action to repair financial systems, promote the flow of credit, is essential to limit the damage recessions cause and to make it possible to bring recovery about at least cost to the taxpayer over time,” he said.
The bailout money has been used primarily to bolster the financial industry -- including giants such as Bank of America and Citigroup Inc. as well as smaller banks such as City National Bank in Beverly Hills -- but also to try to steady the teetering U.S. auto industry, specifically Chrysler and General Motors Corp.
Geithner tried to blunt criticism of the bailouts by saying the government was doing its best to balance the protection of taxpayer money with prevention of a collapse of the financial system.
“My basic obligation and our responsibility is to make sure that the system as a whole has the ability to provide the credit that recovery requires. And so we need to make a careful judgment about what policies are going to best promote that objective,” Geithner told the congressional oversight panel created last fall to monitor use of the $700-billion Troubled Asset Relief Program.
In a separate letter to panel Chairwoman Elizabeth Warren, a Harvard University law professor, Geithner said the TARP fund had at least $109.6 billion remaining after a series of unprecedented investments in U.S. banks and other financial institutions.
Geithner noted that seven financial institutions had already repaid their TARP money. He didn’t say how much had been repaid, but called $25 billion over the next year a “conservative estimate.” With those repayments, the administration expects to have $134.6 billion available in the bailout fund for additional rescue efforts.
Noting that the administration plans to provide additional money to banks, as well as to GM and Chrysler, “we believe that even under the conservative estimate of available funds described here, we have the resources to move forward implementing all aspects of our financial stability plan,” Geithner wrote.
The administration has not said how much more money it might provide to GM as it aims to restructure by June 1 and to Chrysler as it seeks a government-brokered merger with Italian automaker Fiat by May 1. But a report Tuesday from the office of the TARP special inspector general said GM would get up to $5 billion and Chrysler up to $500 million in working capital.
In February, the White House said it might need an additional $750 billion in bailout money should economic conditions worsen. But administration officials have since stressed that they have no plans to ask Congress for more money.
Warren said the oversight panel was trying to address public criticism of the bailouts.
“People are angry because they’re paying for programs that haven’t been fully explained and have no apparent benefit for their families or for the economy as a whole but that seem to leave enough cash in the system for lavish bonuses or golf outings,” she said. “None of this seems fair.”
Panel member Damon Silvers, associate counsel for the AFL-CIO, questioned a planned public-private partnership to buy toxic assets from financial institutions.
He said there seemed to be a “profound and inexplicable imbalance” between, on one hand, the risk that the government would take on in financing the purchases and the potential for an eventual profit for taxpayers, and, on the other hand, the lower risk and greater upside for private investors.
“Now, I just don’t get it, Mr. Secretary, how this represents protecting the taxpayer, and I would like you to explain why it does,” Silvers said.
Geithner said the alternative would be for the government to take on all of the risk and to determine, in the absence of private investors, the fair market value for the assets.
“That trade-off is a bad trade-off,” Geithner said, “because the government is highly unlikely to be in a position to be able to get the valuation right.”