HIGHLIGHTS-Geithner testifies to House Appropriations panel

(Adds comments on terms for TARP repayment)

WASHINGTON, May 21 (Reuters) - The following are highlights
from the testimony of U.S. Treasury Secretary Timothy Geithner
to the House Appropriations financial services subcommittee on
Thursday.
> For a story on the hearing, see [ID:nN21365767]
> For a text of Geithner's prepared testimony, see:
here
> For key stories on the global financial crisis, see
[MKTS/LOOK]

GEITHNER ON TERMS FOR TARP REPAYMENT:

"You need to have more capital than the Fed's recent capital
assessment said you needed... And you need to demonstrate that
you can issue debt in the markets without an FDIC guarantee.

"That's sort of an additional protection to make sure that
these banks are not... taking advantage of other programs the
government has laid out to help stabilize the system as a
whole. If they meet those two conditions, then my expectation
is that they will get approval to repay."

GEITHNER ON BANK REPURCHASES OF WARRANTS GRANTED TO GOVT IN
EXCHANGE FOR FEDERAL SUPPORT:

"On the warrants, the way it works now is, firms have the
ability to come in and repurchase. And if they do that we have
an elaborate process in place to try to make sure we use
outside market-based pricing to judge the appropriate value for
the taxpayer in that context. If they don't want to repurchase,
we still have the right to sell those warrants into the market,
and we'd use an auction procedure if we do that to make sure,
again, we're getting the best price for the taxpayer. We have
to make a careful judgment about what the right timeframe is
... and that's something we're picking through carefully now."

GEITHNER ON ECONOMIC STABILIZATION

"The economy is showing signs of stabilizing. The rate of
declining growth has slowed. Financial markets are starting to
heal. Easier for businesses to borrow in the capital markets.
Interest rates have come down quite a bit. Costs of credit has
come down. Asset-backed securities markets starting to open up
again. Cost of borrowing by banks has come down a bit. Those
are signs of somewhat greater confidence and stability. But I
agree with you that it is very early still. This is really just
the beginning. And businesses and families across the country
are still going through, again, the most challenging period
that this country has seen in decades. Companies are still
laying off people. The labor market has not yet stabilized.
Unemployment is still rising. And even as growth starts to
recover, and it will, unemployment is likely to continue to
rise for some time. So this is just the beginning."

GEITHNER ON BRINGING DOWN DEFICIT:

"We will work very hard to make sure that we bring these
deficits down once we put in place a recovery and we fix this
crisis that we inherited. Remember, we start with, and we
started with, an exceptionally high deficit. The cost of the
crisis required exceptional costs up front. There is no way we
could solve this crisis without the temporary necessity of
higher short-term deficits, and if we did not do this, again,
we would face higher deficits in the future."

GEITHNER ON USING TARP MONEY TO STABILIZE STATE BOND
RATINGS:

"We do not believe that TARP as currently legislated
provides a viable solution to this specific challenge. Let me
cite three specific reasons why that's the case. We are not
allowed under TARP to guarantee issues, securities issued after
March 2008. We are restricted to giving to financial
institutions. The way TARP is designed, every dollar that we
guarantee is charged against the limited funds that Congress
authorized. For those reasons and others, it does not appear to
us to provide a viable way of responding to that challenge. I
think that's why your colleagues in the House are considering
legislation to address that problem. As I said, we are of
course prepared to work with Congress on ways to think through
how to address this problem - ways that would not make some
other problems worse in the future. It is a difficult and
complicated balance."

GEITHNER ON SAFEGUARDING U.S. BORROWING CAPACITY:

"I am deeply aware of the complexity and importance of that
basic task of making sure we are preserving that great asset --
which is the deepest and most liquid markets in the world. And
we will work very hard at that."

"You are right to say that the Fed is embarked on a very
unconventional, exceptional program for buying Treasuries...but
we have a very strong Fed, independent Fed, whose basic
obligation to the Congress and the American people is to keep
inflation low and stable over time and they have been
exceptionally good at doing that and they will be good in the
future. And, as the (Fed) chairman has said in public, they are
very committed to making sure they have the ability to unwind
and reverse the exceptional measures they have taken once we
have achieved the necessary stability in our financial markets
and an economic recovery is back on track."

GEITHNER ON STRONG DOLLAR

"As the secretary of the Treasury, I want you to know that
my basic obligation is to make sure that we put in place
policies that sustain confidence in this economy, in our
currency, that we sustain a strong dollar, that we retain what
is a great strength and asset to this country, which is the
most deep and most liquid market for Treasury securities in the
world."

GEITHNER ON EUROPEAN RESPONSE TO STIMULUS:

"The major European countries are doing very substantial
stimulus in 2009. What distinguishes their approach from ours
is that the stimulus package that Congress designed with the
president provides for more support sustained over a two-year
period of time. Europeans have somewhat of a different system
and they have been reluctant to commit at this stage to lock in
new additional spending probably because their systems are
different. But my sense is the whole context has changed. Six
months ago, people were debating whether this was crisis or
not, they thought it would be contained to the United States,
the world would be insulated from it. No one takes that view
now. Their economies are going through as challenging a period,
many more challenging. That has led to greater recognition
about the imperativeness in Europe for a more aggressive
action."

GEITHNER ON FINANCIAL AGENCY TO PROTECT CONSUMERS:

"We are going to lay out to the public and to the Congress
in the next several weeks a broad set of comprehensive reforms.
As part of that, we will make some proposals for how we change
the oversight structure. This country has lived for some time
with a very complicated, very segmented, archaic framework of
oversight over our financial system, and that's one reason ...
why this crisis was so severe, one reason why consumer
protections were evaded so easily. And that's something we are
going to have to change."

"As part of that ... we are examining the merits of setting
up a new independent commission or agency to help provide
stronger rules to protect consumers and better enforcement of
those rules. We are not at the point yet though where we've
made a judgment on what precise structure (or) form this should
take, how broad its authority should be, how it relates to
existing authorities that exist across the agencies now. But we
look forward to a chance to laying out our proposals for you
when we are ready. I think it will probably take a little
longer to address the questions you've raised, which is how to
fund it, how large it is going to have to be. We are starting
to think through those questions now but as you know those are
very complicated, consequential questions...."

"The objective is ... that we have better designed rules to
protect consumers that are enforced much more effectively and
evenly across the entire financial system."

GEITHNER ON STABILITY OF FINANCIAL SYSTEM:

"While TARP is proving effective at improving the immediate
stability of the financial system, the scope of the issues that
this Administration and this Department face extend beyond TARP
to include striking the delicate balance between intervention
and allowing market participants latitude to operate; devising
a new financial regulatory structure for the future; and
working through the tough problems of what form our
government-sponsored enterprises, Fannie Mae and Freddie Mac,
should take as we emerge from this difficult period."

GEITHNER ON BUDGET DEFICIT:

"The President has made clear that he will not seek any
major revenue increases until 2011 when the recovery should be
firmly in place. He has, however, been equally clear that once
recovery is underway, we must get our fiscal house in order or
risk having government borrowing crowd out productive private
investment. Treasury and the White House will work with
Congress to make the tax changes that are necessary to reduce
deficits and to do so in a manner that is fair to all
Americans.