Geithner Extends TARP Into October 2010

WASHINGTON, D.C. ( TheStreet) -- Treasury Secretary Timothy Geithner Wednesday told Congress he was extending the Troubled Asset Relief Program, or TARP, until October 2010, saying the program is working but significant challenges remain.

"As we wind down many of the government programs launched initially to address the crisis, it is imperative that we maintain this capacity to respond if financial conditions worsen and threaten our economy," he states in a letter sent to select members of the House of Representatives and Senate.

Geithner also provides some estimates for the breadth of the program in the coming year, forecasting new TARP commitments of $25 billion in 2010, and noting the program overall is expected to cost at least $200 billion less than was projected during a review in mid-August.

He says the Treasury anticipates it will receive $175 billion in repayments by the end of 2010, and put the total deployment for the program, which has an authorization of $700 billion, at $550 billion. Since January 20, only $7 billion in TARP funds have been distributed, the letter states, mostly to small institutions. Geithner also forecasts "substantial additional repayments" after 2010, and states that losses on TARP investments are likely to be "significantly lower previously expected."

Specifically, Geithner says the government now expects to recover "all but $42 billion of the $364 billion in TARP funds disbursed in FY2009" and that it expects a positive return on its investments in banks, who will soon have paid back "nearly half of the TARP funds they received," according to the letter.

As for the TARP exit strategy, Geithner says the program will limit commitments to three areas in 2010 -- mitigating home foreclosures, providing capital to small and community banks to stimulate small business lending, and possibly increasing commitments to the Term Asset-Backed Securities Loan Facility, or TALF, initiative.

Beyond these areas, Geithner says "we will not use remaining EESA Emergency Economic Stability Act funds unless necessary to respond to an immediate and substantial threat to the economy stemming from financial instability."

Geithner also mentions using TARP repayments to address federal debt.

"The combination of the reduced scale of TARP commitments and substantial repayments should allow us to commit significant resources to pay down the federal debt over time and slow its growth rate," he says.

Bank of America ( BAC) made TARP a hot topic last week when it announced plans to repay its $45 billion in funds, putting pressure on big bank counterparts Citigroup ( C) and Wells Fargo ( WFC).

Among the other big financial companies, Goldman Sachs ( GS), JPMorgan Chase ( JPM), and Morgan Stanley ( MS) have repaid their funds.

Written by Michael Baron in New York.

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