UPDATE 1-U.S. Treasury praises Bank of America payback

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WASHINGTON Dec 2 (Reuters) - The U.S. Treasury Department said on Wednesday that Bank of America Corp.'s (BAC.N) decision to repay $45 billion of bailout funds will boost confidence in the health of the financial system.

"We are pleased that Bank of America is moving ahead with plans to pay the taxpayers back in full," a U.S. Treasury official said. "As banks replace Treasury investments with private capital, confidence in the financial system increases...(and) government's unprecedented involvement in the private sector lessens."

The Charlotte, North Carolina-based banking giant is expected to sign documents repaying its Troubled Asset Relief Program funds over the next few days.

It will issue up to $18.8 billion in "common equivalent securities," which would be treated as tier 1 common capital. The remainder would be repaid through $26.2 billion in cash.

Earlier on Wednesday, Treasury Secretary Timothy Geithner said it now seemed a "very, very substantial" portion of the government's $700 billion financial rescue fund will not be needed, but warned it shouldn't be shuttered immediately.

"We are actually close to the point where I think we can wind down this program and stop making new commitments and put it out of existence," Geithner told the Senate Agriculture Committee.

The Treasury official also welcomed Bank of America's commitment to strengthen lending to small business and praised it for an on-going effort to modify mortgages so that troubled borrowers don't lose their homes to foreclosure.

(Reporting by Glenn Somerville; Editing by Diane Craft) ((glenn.somerville@thomsonreuters.com; +1-202-898-8377; Reuters Messaging: glenn.somerville.reuters.com@reuters.net))