With the U.S. economy improved since the darker days of the financial crisis, the Treasury Department will start winding down its $700 billion financial-rescue program and ramping up the focus on small businesses and homeowners, a department official said Thursday.
"The work we have done under our Financial Stability Plan helped avert a collapse of our financial system," Treasury Assistant Secretary for Financial Stability Herb Allison told the Congressional Oversight Panel in his prepared testimony. "As such, the Treasury is now in a position to begin winding down" Troubled Asset Relief Program activities "that helped put large banks and the auto companies on a sounder footing."
Still, the head of the Tarp oversight panel, Elizabeth Warren, voiced concern about the state of the financial markets.
"Many of the factors that caused the crisis remain in place," she said in an opening statement. "The financial sector is more consolidated today than it was a year ago, meaning the public is still at the mercy of institutions that are considered 'too big to fail'."
At the same time, Warren said, she is "encouraged" that the Treasury is talking about winding down the financial-rescue program.
Treasury Secretary Timothy Geithner first outlined plans to wind down Tarp at a summit this week that was sponsored by Reuters.
Allison said the plan is to wind down key programs, such as the Capital Purchase Program for banks, at yearend.
He pointed out that the financial system remains fragile and several markets are still impaired. That said, the Treasury will move carefully as it scales back Tarp so as not to endanger any recovery, he said.
The Treasury plans to change the focus of Tarp so that it continues to address credit-market issues that are hurting homeowners and small businesses, he said.
"It is time to set a new direction for Tarp," Allison said.
For proof that Tarp capital has had a positive impact on the crisis-hit financial markets, Allison pointed out that he expects banking companies will be able to repay another $50 billion to the Tarp fund during the next 12 to 18 months.
Asked whether large companies such as Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. could soon repay Tarp funds, Allison gave no specific answer, saying it is really up to their regulators.
The Treasury has already received more than $70 billion in principal repayments and more than $6.5 billion in dividends, interest and fees from banking companies that participated in the department's key Tarp program to shore up the financial services industry.
Allison noted that the Treasury is continuing to work on ways to improve the Obama administration's anti-foreclosure program aimed at helping struggling homeowners keep their homes.
"We continue to study ways to help unemployed homeowners, and we remain committed to meeting the challenges of reducing foreclosures and helping people maintain their homes," Allison said.