Paulson defends handling of U.S. financial crisis

SIMI VALLEY, California (Reuters) - Treasury Secretary Henry Paulson on Thursday defended his handling of the financial crisis but refused to say whether any further help will be offered to struggling bank Citigroup.

Speaking at the Ronald Reagan Library in Simi Valley, Calif., Paulson blasted "naive" critics who said letting Lehman Brothers fail in September made the situation worse, and said authorities had helped avert a financial collapse.

"The steps that we've taken have been pretty strong ... we understand how important the stability of our financial system is, and stability is our top priority here," he said in response to a question about Citigroup but added: "I can't comment on any one institution."

Citigroup has lost more than half of its share value this month and on Thursday was the top decliner among large U.S. banks. But other banks including JPMorgan Chase & Co and Bank of America Corp also had large share losses.

Paulson, former chief executive of Goldman Sachs who took over Treasury in mid-2006, has only two months left in office and speculation already has turned to who will be his successor in the administration of President-elect Barack Obama.

CHEERS AND JEERS

Paulson received a standing ovation from a crowd of about 1,000 at the Ronald Reagan library. But a handful of protesters waited outside for him and at least one person was forcibly ejected from the auditorium.

He said Treasury, working with the Federal Reserve and Federal Deposit Insurance Corp., has averted a meltdown but it will take time to work off "excesses" that made the financial system vulnerable.

"Looking forward, working with the Fed and the FDIC, we now have the tools and the commitment to do what is necessary to maintain the stability of our financial system," Paulson said.

"Many challenges lie ahead and progress will not be in a straight line," he said.

Paulson said Treasury was developing new programs under the $700 billion financial rescue fund, known as the Troubled Assets Relief Program or TARP, but offered no details.

CRITICS NAIVE

He struck back at critics of the decision in September to let investment bank Lehman Brothers file for bankruptcy, repeating that it had not been possible to avoid because there was no federal authority to intervene at the time.

"Some have chosen to scapegoat the Lehman failure as the cause of the deepening crisis in September, as opposed to a symptom," Paulson said. "That is at best naive, and at worst disingenuous."

Even if a deal to have another company take over Lehman had been struck, it wouldn't have saved insurer American International Group or Washington Mutual, nor would it have averted a wave of failures that European governments were forced to step in to avert, he insisted.

Paulson warned that market conditions remain under severe stress and cautioned against "a hasty response" in the form of more regulation. An effort should be made to balance market discipline and regulation, he said, "and no institution should be deemed to be too interconnected or too big to fail."

(Writing by Glenn Somerville and David Lawder; Editing by Chizu Nomiyama)