[ForexNews]

Treasury Secretary Geithner testified Wednesday to the Senate Banking Committee on TARP oversight and the latest efforts taken to revive financial markets; his remarks highlighted the progress made, but emphasized that these programs need to remain for some time and there is more work to be done. He began by highlighting the signs of improvement in financial markets, including the decline in corporate bond spreads, the drop in risk premiums in inter-bank markets, the decrease in the cost of credit protection for the large US banks, the pick-up in securities issuance, and the surge in mortgage refinancing. In addition, the painful adjustment in financial markets has been underway as bank leverage falls.

Despite these welcome developments, Geithner argued that the process of recovery and repair will take time and that the Treasury's "work is not yet complete." Treasury Secretary Geithner outlined the many policies introduced thus far, focusing on the TALF and PPIP. He discussed the latest expansions to the TALF and stated that the Treasury will continue to "enhance the ABS programs to bring in new, more niche asset classes and make sure that the number of eligible borrowers and issuers continues to increase." To date, there has been $24.8bn in total issuance under TALF, of which $17.2bn has been through TALF borrowers. For comparison, the three-month average of TALF issuance equals half of the total 2007 market volume. Geithner also gave a detailed explanation of the PPIP, both the legacy securities and loans programs. He expects the PPIP to begin operating over the next six weeks. Taking into account all these programs, the Treasury estimates that there is $124bn left in TARP funds. This reflects the $601bn already committed and an assumption that financial institutions will repay $25bn over the coming year.

Secretary Geithner concluded by assuring that the Treasury remains committed to repairing financial markets and promoting the flow of credit. Once financial markets stabilize, the Treasury will focus on comprehensive regulatory reforms to sustain systemic risk and prevent future crisis.