UPDATE 2-U.S. Treasury, pay czar applaud BofA payback

* Feinberg says repayment will be "very satisfying"

* Treasury says plans signal health of financial sector (Adds Feinberg's comments, byline)

By Glenn Somerville and Steve Eder

WASHINGTON/NEW YORK, Dec 2 (Reuters) - The U.S. Treasury Department and U.S. pay czar on Wednesday welcomed Bank of America Corp.'s (BAC.N) plans to repay $45 billion of bailout funds.

Treasury said the repayment will boost the confidence in the health of the financial system, while pay czar Kenneth Feinberg said the payback synchs with the goals of the $700 billion Troubled Asset Relief Program (TARP).

"The No. 1 objective has always been to secure total repayment to the taxpayer of the loans to the TARP recipients," Feinberg told Reuters in an interview. "If that is accomplished, then we have achieved our statutory objective and it is very satisfying."

A Treasury official said the department is "pleased" Bank of America is moving ahead with plans to pay the taxpayers back in full.

"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 official said.

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, 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 in Washington and Steve Eder in New York; Editing by Diane Craft, Leslie Gevirtz) ((glenn.somerville@thomsonreuters.com; +1-202-898-8377; Reuters Messaging: glenn.somerville.reuters.com@reuters.net))