Geithner: Many banks have 'more capital than they need'

WASHINGTON -- Treasury Secretary Timothy Geithner said Tuesday that the vast majority of U.S. banks are well capitalized, even while conceding that many have curtailed business and consumer lending despite receiving billions of dollars in federal bailout funds.

"Currently, the vast majority of banks have more capital than they need to be considered well capitalized by their regulators," Geithner told a special oversight panel on Capitol Hill. His comments cheered investors, who pushed bank stocks higher.

Geithner added, however, that skittishness about the economy and trillions of "toxic" mortgages and other assets clogging bank balance sheets have "sharply reduced lending across the financial system, working against economic recovery."

The Treasury secretary faced tough questions from the panel, which is overseeing implementation of a $700 billion financial rescue law. Treasury has about $110 billion remaining under the law, which Geithner said had produced "mixed" results.

A special inspector general report Tuesday said a private-public partnership designed to buy up bad assets under the law is tilted in favor of private investors. Also Tuesday, the International Monetary Fund predicted that U.S. financial firms could lose $2.7 trillion through 2010. Global losses could top $4 trillion.

Harvard professor Elizabeth Warren, chair of the oversight panel, pressed Treasury to make its programs more transparent and more equitable.

"People are angry that, even if they have consistently paid their bills on time and never missed a payment, their (federally) assisted banks are unilaterally raising their interest rates or slashing their credit lines," Warren said.

While Geithner said most banks were adequately capitalized, markets are nervously awaiting the results of a special Treasury "stress test" of 19 large lenders to see if they can weather a deep recession.

Geithner said banks found to need capital will have options, such as raising private funds or converting government investments to common equity shares from preferred shares.