Geithner: Banks Likely Done with Tightening Credit Standards

U.S. Treasury Secretary Timothy GeithnerThe U.S. government’s bailout program has been “critical” to restoring stability to the economy, keeping borrowing rates at historic lows and bolstering the banking system – although credit remains difficult to obtain for some consumers and businesses, Treasury Secretary Timothy Geithner said today.
Geithner’s status report was part of prepared testimony for the Congressional Oversight Panel, the watchdog over the Troubled Asset Relief Program, TARP, Treasury’s primary bailout vehicle.
The Treasury secretary defended the handling of the bailout program, criticized by lawmakers from both parties as favoring big financial institutions over small business and consumers.
Credit conditions “no longer pose an obstacle to growth,” Geithner said. But he also provided a mixed outlook for borrowers, adding that banks appear to have “finished tightening credit standards for both large and small borrowers.”
“The U.S. banking system is stronger today,” Geithner said in prepared testimony. “TARP provided a critical backstop for the stress tests of our major banks, which provided transparency and forced them to raise over $150 billion in capital from private sources.  Delinquencies for many loan categories appear to have peaked.  The cost to insure against the risk of default of banks is less than half of what it was last March.  That translates into lower loan rates for consumers and businesses.”
But despite the progress, significant challenges remain, he added.
“In the banking system, charge-offs for residential, consumer, and commercial loans are still elevated, and the FDIC projects that the rate of bank failures will remain high,” Geithner said.
And despite low borrowing costs, banks continue to report falling loan balances. This is “reflects a natural and healthy adjustment as borrowers and lenders de-leverage after a period of aggressive credit expansion,” he said.
But it also means that “many consumers and businesses are still finding it difficult to get new credit,” Geithner said.
Geithner said TARP will cost taxpayers $105 billion, according to the latest estimate. That’s down from an estimate of $341 billion in August. The Treasury has paid out $386 billion of the total Congress authorized for TARP, and $194 billion of it has been repaid, Geithner said.

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