US Treasury Secretary Timothy Geithner said the ``vast majority'' of US banks have more capital than needed, stoking a rally in stocks as investors await results of stress tests on the balance sheets of the biggest lenders.
``Currently, the vast majority of banks have more capital than they need to be considered well capitalized by their regulators,'' Geithner said in testimony to a congressional oversight panel on the government's financial-rescue program. He added that there will be a ``series of options'' for lenders deemed to need additional money at the conclusion of the tests.
Geithner also said there are signs of ``thawing'' in credit markets and some indication that confidence is beginning to return. His remarks reflect an improvement in earnings in several lenders' results for the first quarter, and a reduction in benchmark lending rates this month.
The Treasury chief also said in comments released today that the government has sufficient funds remaining in the $US700 billion ($1 trillion) Troubled Asset Relief Program to aid US banks. The comments reinforced indications the administration doesn't currently intend to ask Congress for more money.
Wall Street stocks were more than 1% higher nearing the final minutes of trade.
The Federal Reserve is leading the assessments of the health of the 19 biggest US banks, with results due for release on May 4. The tests are designed to ensure the firms have enough capital to weather a deeper economic downturn over the coming two years.
``What's important is not just the overall level of capital, but the quality of capital, including the amount of tangible common equity,'' Geithner said in answering questions at the hearing today.
Potential options for banks in the tests include tapping private markets and converting existing preferred shares issued to the government into common equity. While ``a conversion itself doesn't add to the overall level of regulatory capital, it does change the composition in ways that actually could be helpful, he said.'' Firms could also get more taxpayer funds.
The banks will work with their supervisors on the ``best mix'' of options should more capital be needed, Geithner said.
Even amid some signs of improvement in financial markets, bank reports show ``significant declines'' in commercial and industrial lending and consumer loans such as credit cards, Geithner said. Also, credit costs remain high, even if they recently have declined somewhat, he said.
``Indicators on interbank lending, corporate issuance and credit spreads generally suggest improvements in confidence in the stability of the system and some thawing in credit markets,'' the secretary also said.
Geithner in his testimony also offered new details on the government's plans for rules on executive pay for firms that have received taxpayer aid.
The administration plans in coming weeks to release guidelines on compensation limits. The new regulations will be effective immediately, while there also will be a 60-day comment period.
``We will engage in a thorough review of this issue,'' Geithner said. ``I anticipate that we will look for ways to orient compensation towards long-term performance.''
In a letter to the oversight panel released separately today, the Treasury chief reiterated his view that about $US135 billion is still available in the TARP fund approved by Congress in October.
About $US590 billion of the original $US700 billion has been allocated so far for various TARP activities, leaving $US110 billion remaining. The Treasury expects $US25 billion in repayments this year, leading to the total projection of $US135 billion available.
``We believe that even under the conservative estimate of available funds described here, we have the resources to move forward implementing all aspects of our Financial Stability Plan,'' Geithner said in the letter to Elizabeth Warren, the chairman of the Congressional Oversight Panel.
The Treasury first put forward the estimates in late March. In the letter, Geithner said it's possible the Treasury may have even more money remaining, depending on how many banks repay TARP and whether a housing-aid program uses its full allocation.
``Our projections anticipate only $US25 billion will be repaid'' over the next year, Geithner said. This figure is ``lower than many private analysts expect,'' he said.
Geithner said that supervisors, not the Treasury, will make judgments about whether a bank has enough capital, and whether the financial system more broadly has sufficient funds, before allowing big lenders to return their taxpayer funds.
In opening statements, Damon Silvers, a member of the oversight panel and associate general counsel for the AFL-CIO, said the Treasury yesterday provided about 10,000 documents dealing with the government's rescue of American International Group Inc.
Geithner's testimony comes on the same day as the release of a separate report on the rescue program prepared by Neil Barofsky, the special inspector general for TARP. Barofsky said his office has six audits under way on various elements of the program.
One of the inquiries addresses federal assistance to Bank of America Corp., which has benefited from three different bank rescue efforts, and the Treasury's decision to extend aid in connection with Bank of America's acquisition of Merrill Lynch & Co. The audit was expanded to include the other eight large banks that received TARP funding in October, the report said.
Geithner said he's not worried about low initial participation in the Fed's Term Asset-Backed Securities Loan Facility, a joint effort with the Treasury to fund the purchase of as much as $US1 trillion in consumer and business loans. Geithner said participation has been ``relatively good for an early program.''
Congress will need to work with the Treasury to help investors feel confident that conditions are fixed, for TALF and other programs. For the rescue effort to work, markets must take risk alongside the government, and to do that they will seek certainty on the ``rules of the game,'' Geithner said.
Bloomberg News