U.S. to put conditions on TARP repayment: report

NEW YORK (Reuters) - Strong banks will be allowed to repay federal bailout funds, but only if such a move passes a test to determine whether it is in the national economic interest, the Financial Times reported on Sunday, citing a senior U.S. administration official.

The report said banks that had plenty of capital and demonstrated an ability to raise fresh capital from the market should, in principle, be able to repay government funds.

But the judgment would be made in the context of the wider economic interest, the report said.

The unnamed official told the Financial Times the government had three basic tests. It needed first to "make sure the system is stable." Second, to not create "incentives for more deleveraging which would deepen the recession." Third, to make sure the system had enough capital to "provide credit to support the recovery."

The comments come as Goldman Sachs Group (GS.N), JPMorgan Chase & Co (JPM.N) and other banks are pressing to be allowed to repay their bail-out funds.

The report also cited the official as saying former Treasury Secretary Hank Paulson was right to treat banks the same way in late 2008, at the peak of the crisis, but it was now necessary to differentiate more between institutions.

Stronger ones should be encouraged to raise more capital, while the government would target its interventions to support weaker ones, the official told the paper.

(Reporting by Jui Chakravorty Das; Editing by Dhara Ranasinghe)