UPDATE 1-Geithner says chunk of TARP funds won't be needed

Wed Dec 2, 2009 11:34am EST

(Adds details, background)

WASHINGTON Dec 2 (Reuters) - U.S. Treasury Secretary Timothy Geithner on Wednesday said a "very, very substantial" portion of the government's $700 billion financial rescue fund will not be needed, but he warned it was premature to shutter the program entirely.

"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.

"We are at the point now that we are going to be able to return very, very substantial amounts of money to address the critical economic needs, the long-term fiscal needs of this country," he said.

The Congress approved the U.S. bailout fund in October 2008 to shore up teetering banks after the collapse of Lehman Brothers pushed the global financial system to the brink of collapse.

The program, which has about $210 billion remaining, is set to expire at the end of the year, unless Geithner formally informs Congress it is still needed. His remarks on Wednesday were the clearest sign yet that the Obama administration intends to keep a portion of the funds available for further investment.

"If you look at the U.S. financial system today, there are parts that are still very damaged," Geithner said, citing difficulties small businesses face obtaining credit, a still-ailing housing market, souring commercial real estate loans and mounting pressures on small banks.

"We have to be very careful to make sure we are not prematurely taking steps that would intensify those financial headwinds," he said.

Some Democrats want the administration to use the fund to bolster the economic recovery and spur job creation. Republican critics have begun to call it a "slush fund."

Geithner suggested the administration would steer a middle course, mindful that the U.S. government is facing record budget deficits.

"The president and I will be making some suggestions to the Congress in the coming weeks on what to do with this program, how to end it safely," he said. ((Reporting by Tim Ahmann, Editing by Gary Crosse)) ((tim.ahmann@thomsonreuters.com; +1-202-898-8370; Reuters Messaging: tim.ahmann.reuters.com@reuters.net))

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