U.S. Treasury Secretary Timothy Geithner said Wednesday the Obama administration was making progress in stabilizing financial markets and would have a program to remove toxic assets from banks' balance sheets operational by July. Testifying before the Senate Banking Committee, Geithner said the U.S. financial system was “starting to heal” after a period of severe shock, crediting an array of emergency government programs for helping to ease a crisis sparked by a surge in mortgage defaults. However, Geithner said the outlook remained fragile and the Obama administration had to be cautious about how it uses what little money is left in the $700 billion financial rescue fund Congress approved last October. He estimated about $123.7 billion remained in the fund. “We still face a very challenging economic and financial environment, and we need to be careful to preserve substantial resources and flexibility to deal with future contingencies,” Geithner told the committee. Geithner said a public-private investment program designed to buy toxic assets that are crippling the banking system will start operating by July, and that his department is in the process of selecting fund managers from more than 100 applicants. “Treasury is evaluating a select group of finalists and will inform applicants of their preliminary qualifications in the next several weeks,” Geithner said. “Working with the Federal Reserve and the FDIC (Federal Deposit Insurance Corporation), we expect these programs to begin operating over the next six weeks.” Geithner also discussed the recent bank “stress tests” and said banks would repay billions in government loans this year. He projected that financial institutions will repay $25 billion of their government rescue funds this year and said the money will be used to further assist banks and the auto industry. The government's review of the country's 19 biggest banks has helped increase confidence in the financial system, and banks identified in the stress tests as having capital shortfalls have raised $48 billion of the $75 billion that the government said they needed to survive a deeper economic crisis, Geithner said, adding that nine of the banks having adequate capital also have raised about $8 billion that they will use to repay the government.
