TARP extension likely

The Treasury Department is unlikely to discontinue its $700-billion relief program by the year's end, an agency official suggested Thursday.

Lawmakers originally scheduled the Troubled Asset Relief Program (TARP) to conclude this December, but they also permitted Treasury Secretary Tim Geithner to extend the program until October if he felt he needed the extra time to rehabilitate struggling firms.

While lawmakers have recently signaled their dissatisfaction with that idea, Assistant Secretary for Financial Stability Herbert M. Allison suggested to the Senate Banking Committee on Thursday that an extension was still likely.

"Declining prices in the commercial real estate market could put additional pressure on bank balance sheets and capital positions, while continued downward pressure on housing prices could stall a nationwide recovery," he said during the hearing. "In this context, it is prudent to maintain capacity to address new developments. By bolstering confidence, having such capacity may actually reduce the need to use it."

Allison's testimony arrives a few days after a bipartisan group of 40 senators wrote a letter to Geithner asking him to terminate the TARP in December, as planned, and devote the program's remaining dollars to paying down the federal debt.

“The Troubled Asset Relief Program was originally designed and proposed to Congress as a measure to help failing banks get toxic assets off their books while they regained financial stability,” said Sen. John Thune (R-S.D.), the letter's chief signatory. “In reality, TARP has been used to take ownership interests in banks, insurance companies, and automakers."