U.S. Extends TARP Until October 2010

By DARRELL A. HUGHES and MEENA THIRUVENGADAM

Treasury Secretary Timothy Geithner said the Obama administration would extend the $700 billion financial-sector bailout but limit new spending to such areas as housing and small business.

Mr. Geithner, in letters to U.S. lawmakers, said the financial sector has stabilized, but the government needs to have funds available through next October. "It is imperative that we maintain this capacity to respond if financial conditions worsen and threaten our economy," he said.

Extension of the Troubled Asset Relief Program from its scheduled Dec. 31 expiration comes as some Democrats look to tap some of the more than $200 billion remaining for other initiatives, such as those aimed at job creation. On Tuesday, President Barack Obama said the White House would use an additional $50 billion in TARP funds to help small businesses get credit.

Republicans criticized the extension, saying the program shouldn't turn into a piggybank for other initiatives. "The Obama administration just can't seem to let go of the $700 billion in 'walking-around money' taxpayers were forced to put on the line to bail out Wall Street last year," said Rep. Jeb Hensarling (R., Texas).

Administration officials said the U.S. economy remained too fragile to abandon TARP and that its expiration would spook financial markets. The U.S. government had no other tools to deal with the potential collapse of large financial firms, they said. The administration is seeking additional powers in its proposed financial regulatory overhaul.

Mr. Geithner outlined steps the administration was taking to end some of the emergency support extended during the height of the financial crisis, part of an effort to tamp down criticism.

He said the Treasury Department would limit use of TARP funds to only a few areas: foreclosure prevention; providing capital to small and community banks; boosting small-business lending, and a potential increase in support for a Federal Reserve program aimed at jump-starting business and consumer loans.

"While we are extending the $700 billion program, we do not expect to deploy more than $550 billion," Mr. Geithner said. He added the U.S. would seek to exit its TARP investments "as soon as practicable."

Mr. Geithner warned lawmakers that "near-term shocks" to the financial system were possible and that the government may use TARP to respond to immediate and substantial economic threats stemming from financial instability.

The Obama administration has also reduced estimates of how much the program would cost, saying it now expected to lose $141 billion over 10 years, down from $341 projected in August.

Part of the reduction estimate stems from bank repayments. Bank of America Corp., for example, on Wednesday said it had returned the Treasury's $45 billion investment.

Write to Meena Thiruvengadam at meena.thiruvengadam@dowjones.com