Spend or save last of U.S. financial rescue funds?

By David Lawder - Analysis

WASHINGTON (Reuters) - The U.S. Treasury's financial bailout fund may get some breathing room as banks repay tens of billions of dollars in taxpayer capital starting next month, but this could be quickly absorbed by new aid requests from municipalities, insurers and automakers.

The best use, some analysts say, is to conserve it for a systemic emergency and a wave of looming bank losses in commercial real estate as the recession grinds on.

"They should save it for a rainy day, for when they need it," said Simon Johnson, former IMF chief economist and a senior fellow at the Peterson Institute for International Economics in Washington. "The banking system is still short of capital and I think the case for rescuing anything outside of the financial sector is very weak."

U.S. Treasury Secretary Timothy Geithner testifies on Wednesday before the Senate Banking Committee on the bailout fund's future now that regulators have completed "stress tests" to gauge the ability of the 19 largest U.S. banks to withstand a potential deepening of the already severe recession.

The Treasury has around $106.1 billion in uncommitted funds remaining in the $700 billion Troubled Asset Relief Program approved last October, including about $1.2 billion that has been repaid by smaller banks.

Big institutions seeking to repay their government capital could add another $48.4 billion to that total in the near term, pushing resources back up to around $154.5 billion.

The Federal Reserve said on Tuesday that regulators are mulling requests from several major banks to repay funds. Any announcements of repayments won't come until around June 8.

Institutions reportedly interested in returning money include JPMorgan at $25 billion, Goldman Sachs and Morgan Stanley at $10 billion each and American Express at $3.4 billion.