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Banks Raised Billions, Geithner Says

The country’s biggest banks have made moves to bolster their balance sheets by about $56 billion since the government disclosed the results of its financial “stress tests” two weeks ago, Treasury Secretary Timothy F. Geithner said Wednesday.

Testifying before the Senate Banking Committee, Mr. Geithner said that the financial system had begun to “heal,” and that the Treasury would soon be introducing the next phase of its financial rescue effort — the plan to team up with private investors to buy billions of dollars in toxic assets from banks.

“There are important indications that our financial system is starting to heal,” Mr. Geithner told lawmakers, though he cautioned that it was still too early to talk about an “exit strategy” for the government.

But lawmakers in both parties complained that the $700 billion aid plan, known as the Troubled Asset Relief Program, or TARP, had yet to revive bank lending in many parts of the country.

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Treasury Secretary Timothy Geithner said banks had raised or stated plans to raise $56 billion.Credit...Ozier Muhammad/The New York Times

“The frustration level is mounting on an hourly basis,” said Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the banking committee.

Senator Richard C. Shelby, Republican of Alabama who voted against the entire program last year, said the Treasury had “treated many sick banks” but “certainly has not cured them.”

Democratic lawmakers said that the Treasury was not being firm enough with aid recipients, and several complained that officials were letting General Motors expand production in China as it closed plants in the United States and received taxpayer money.

Republican lawmakers asserted that the government was too intrusive. Senator Mike Johanns of Nebraska, who served as agriculture secretary under President George W. Bush, questioned whether administration officials had the legal authority to oust G.M.’s chief executive, Rick Wagoner, who resigned in late March at the administration’s request.

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Some senators, including Christopher J. Dodd, said banks receiving aid are stingy about lending.Credit...Ozier Muhammad/The New York Times

Mr. Geithner said he was “completely confident that we acted within the legal authority of the executive branch” in pushing out Mr. Wagoner, but he also made it clear that he did not want to second-guess the company’s decisions to invest in China.

In describing the banking system, Mr. Geithner, said that the country’s largest financial institutions had raised billions by issuing common stock and new debt, including $8 billion in bonds not guaranteed by the government.

After reviewing the condition of 19 of the country’s largest financial institutions, regulators said on May 7 that 10 banks needed to raise a total of $75 billion in additional capital to withstand losses if the economy took another turn for the worse. The government said banks could raise the money privately, or convert their preferred shares held by the government to common stock.

Since then, the banks have raised or announced plans to raise $56 billion — $48 billion of which came from the 10 banks that needed to bolster their capital levels, Mr. Geithner said.

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CNBC coverage of testimony by Treasury Secretary Timothy F. Geithner before the Senate Banking Committee regarding the government's bank bailout program.

Several banks, including Goldman Sachs, Morgan Stanley and State Street, have said that they want to repay the money they received from the government’s $700 billion bailout, and are raising money to do so.

Bank of America announced Tuesday night that it had raised $13.47 billion through the sale of 1.25 billion shares of stock. The bank’s share price was up 2 percent on Wednesday, to $11.49.

Mr. Geithner reiterated his prediction that banks would repay about $25 billion in government loans in the months ahead. But when Republicans asked whether the Treasury would reduce its involvement as banks repaid their loans, Mr. Geithner responded that the Treasury would still have the ability to recycle the money into new loans to other institutions if it saw fit. In his testimony, Mr. Geithner offered a broad assessment of how the government had been trying to stabilize the financial system, calm the credit markets, keep the automobile industry afloat and revive the flagging economy.

He said that lending markets were stabilizing and that the interest rates that businesses pay to raise money from bond buyers had been falling, even for companies with subpar credit ratings. Investors sense less risk in lending markets, and the cost of credit protection for American banks has fallen, he said.

The government’s $1 trillion program to buy troubled assets from banks using public-private partnerships is likely to get rolling within six weeks, he said. The Treasury Department has received more than 100 applications from aspiring fund managers for the program.

Mr. Geithner also said that less than $100 billion of the $700 billion federal bailout remained. The government has $98.7 billion left and anticipates receiving $25 billion in repayments.

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