BEIJING Improving confidence may lessen U.S. banks' interest in programs designed by the government to reduce toxic assets from their balance sheets, U.S. Treasury Secretary Timothy Geithner said on Tuesday.
Because banks are raising unexpectedly large amounts of capital from private investors, they may be able to sell more of their impaired assets in the market, Geithner told CNBC during a visit to Beijing.
But he said President Barack Obama's administration would still work with the Federal Reserve and the Federal Deposit Insurance Corp (FDIC) to put asset-purchase programs in place as insurance.
"We still think they have some value," Geithner said. "We're going to work with the FDIC and the Fed to put those funds in place, and we think they'll have some insurance value over time."
Geithner said banks were having considerable success in raising new capital and that may mean it will be easier for them to handle soured assets on their own. "Maybe they'll sell them to the markets as a whole," he said.
Geithner added that some banks that had received big injections of capital from the government may soon be able to repay it. "I think ... we're going to see substantial repayments from some institutions starting relatively quickly," he said.
JPMorgan Chase & Co (JPM.N) and American Express Co (AXP.N) on Monday announced plans to sell $5.5 billion of common stock, hoping to position themselves to quickly repay funds from the government's bank bailout plan.
The two companies were among the 19 U.S. lenders to undergo government "stress tests" of their ability to weather a deep recession, and were among the nine that regulators said did not need more capital.
The Fed said on Monday the government would announce next week which of the 19 will be allowed to repay the government. One condition for repayment is that they are able to raise money in the public equity markets.
An official of the U.S. central bank was quoted on Tuesday as saying that the Fed should not be involved in financing toxic assets dating from the bubble era.
"I think it is a bridge too far," Philadelphia Fed President Charles Plosser told the Financial Times. "I have reservations about the Fed intervening in private credit markets as a matter of principle. I think it confuses monetary and fiscal policy."
Geithner said there was legal flexibility for the Treasury to use any money repaid and that it would do so if necessary.
"We'll use that because, again, we want this economy to emerge as quickly as possible to a stronger foundation for growth," he said.
Geithner added that he felt there was "a reasonable prospect" that taxpayers would get some return from the tens of billions of dollars invested in the ailing domestic auto industry.
General Motors Corp (GM.N) filed for bankruptcy on Monday as the Obama administration decided to push GM into a fast-track bankruptcy and provide $30 billion of additional taxpayer funds to restructure the automaker.
Geithner called criticism of the Obama administration's significant investments in industry unjustified and said they would be temporary. "We are the exceptionally reluctant investor, when we've had to be an investor," Geithner said. "We will try to make sure we get out as quickly as we can."
Despite the Federal Reserve's purchase of hundreds of billions worth of U.S. Treasury debt, there was no suggestion it was effectively monetizing debt, he said.
"There's no risk of that in the United States," he said, adding that Fed Chairman Ben Bernanke was "completely committed" to keeping inflation low.
(Additional reporting by David Stamp in London)
(Reporting by Glenn Somerville; Editing by Jason Subler)