Paybacks, smaller asset plan to aid U.S. bailout cash

By David Lawder - Analysis

WASHINGTON (Reuters) - The dwindling U.S. financial bailout fund will get a boost this week with repayments from some large banks and could see more resources freed up as once-ambitious programs to buy up toxic bank assets shrink.

This could present the U.S. Treasury with a welcome dilemma: what to do with potentially more than $100 billion in unallocated funds as financial market confidence strengthens.

Among the options are increased aid for the housing sector, programs to support mortgage insurers and municipal borrowers that have been clamoring for help, or perhaps just socking the money away for a future emergency.

"Whatever they do should not discourage the return of private investors from investing in banks," said Wayne Abernathy, executive director for financial institutions policy at the American Bankers Association trade group.

"We're at the fortunate point where we're asking ourselves the question, 'Do we really need these programs any more?'"

This week, the Treasury's dwindling $700 billion Troubled Asset Relief Program (TARP) could see up to $66.7 billion returned from nine banks that have met at least the main requirements governing repayment.

And part of the $100 billion that Treasury had pledged from the fund to support purchases of troubled mortgage loans and securities from financial institutions could also be freed up as the Treasury's planned public-private program (PPIP) to cleanse bank balance sheets is scaled back.

Many banks have shown themselves able to tap equity markets for capital, easing the pressure to unload bad assets to make themselves more attractive for investors.