WASHINGTON — Treasury Secretary Tim Geithner formally notified lawmakers on Wednesday that he is extending the controversial Troubled Asset Relief Program until Oct. 3, 2010.

In a letter to House and Senate leaders, Geithner said the financial system has steadied itself but that challenges remain for banks, homeowners and small businesses.

"This extension is necessary to assist American families and stabilize financial markets because it will, among other things, enable us to continue to implement programs that address housing markets and the needs of small businesses, and to maintain the capacity to respond to unforeseen threats," Geithner wrote.

The secretary said he would limit use of the program to a few areas: mitigating foreclosures, helping small businesses, providing capital to community banks and increasing the Term Asset-Backed Securities Loan Facility.

Geithner said he would use Tarp for other purposes only if necessary to stabilize the financial industry. He said he would first consult with the president and the chairman of the Federal Reserve Board as well as submit written notification to Congress.

Geithner warned emergency actions might still be necessary.

"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 wrote. "This capacity will bolster confidence and improve financial stability, thereby decreasing the probability that it will need to be used."

Under the Tarp law, passed Oct. 3, 2008, the Treasury has the authority to extend the program simply by notifying Congress.

Doug Elliott, a fellow at the Brookings Institute, praised the Treasury for extending the program and limiting its future use to $550 billion. "It's a good balance between stopping the program and continuing it at the full $700 billion," he said.

Kip Weissman, a partner at Luse Gorman, said banks may still need Tarp capital to deal with commercial real estate losses and regulatory pressure to build capital.

"I think the industry would want to keep it open," Weissman said. "The government needs a toolbox for issues when they arise. There's a feeling we are not out of the woods yet."

But others said it is unlikely banks will continue to tap the program. Many of the largest recipients of Tarp money have repaid it, including Bank of America Corp.

The program is the subject of ongoing public anger, and lawmakers have put restrictions on executive compensation and other areas.

"Most that want to apply for it have already done so and others won't since it's tainted," said Bert Ely, an independent consultant in Alexandria, Va.

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