Geithner Expects ‘Many’ Banks Will Repay Government TARP Funds

March 12 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner said he wouldn’t prevent banks from returning government capital and predicted that “many” would.

Still, Geithner urged firms that get money from the Troubled Asset Relief Program to keep it until they can replace it with private capital to “provide lending to the economy.” Restoring the flow of credit will help consumers and businesses struggling in a recession, he said.

Banks “are living with a cloud of uncertainty, which is causing them to be defensive and withhold lending, and we need to arrest that basic dynamic,” Geithner told the Senate Budget Committee today in Washington. “But I hope and expect and I believe it will be possible that many banks will be able to repay the government.”

While Geithner testified in support of President Barack Obama’s $3.55 trillion budget for 2010, he faced a number of skeptical questions about the $700 billion financial rescue plan. The Treasury’s most recent tally shows the government has invested most of the first half of TARP in 489 banks nationwide.

The Treasury chief defended the effort to fix the financial system as a way to help average Americans rather than reward Wall Street executives.

“My obligation to the American people is to protect the financial security of this country and to protect our financial system, not because we’re here to do anything for banks,” Geithner said, adding that he “wouldn’t give a penny to help a bank.”

‘Anger Level’

Budget Committee Chairman Kent Conrad, a North Dakota Democrat, told Geithner that among U.S. citizens, “the anger level is extraordinary” about the bailout.

“People in positions of responsibility took advantage of them,” Conrad said. “And they, no fault of their own, are getting stuck paying part of the bill.”

Geithner told the panel he shared their “outrage,” especially over Wall Street compensation practices that awarded executives big bonuses while their firms cratered.

“You’re absolutely right that the judgments made by the leaders of our financial institutions have caused a catastrophic loss of basic confidence,” he said.

Geithner also told lawmakers to be cautious in considering a suspension of mark-to-market accounting rules, which many banks complain are causing them to take excessive writedowns on the value of illiquid securities they hold.

“My personal point of view is that we have to be very careful not to do things that would erode confidence” among investors, Geithner said.

More Money

The Treasury secretary refused to rule out a request from the Obama administration for more bailout money, saying, “our hope is that Congress would come together and do what is necessary to make sure the financial system is strong enough.”

Obama left a $250 billion “placeholder” in the budget for additional aid to the financial industry.

In his prepared remarks, Geithner said that “doesn’t represent a specific request.” Geithner repeated much of the testimony he gave to the House Budget Committee last week, stressing that the Obama administration is “determined” to cut the federal budget deficit by half in four years.

The administration projected a $1.75 trillion deficit for the current fiscal year, representing 12.3 percent of gross domestic product. The Obama budget plan would bring the deficit down to $533 billion, or 3 percent of GDP, by 2013, Geithner said.

Short-term deficits are necessary to combat a recession that has seen 4.4 million job losses since it began in 2007, as well as strains in financial markets, Geithner said.

To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net.

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net