WASHINGTON – Massive rescue efforts by the US government and central bank in recent months helped avert a "financial collapse" and are working to stabilize the economy, a Treasury report said Wednesday.
The Treasury report to a congressional panel overseeing the 700-billion-dollar rescue plan passed in early October said the extraordinary actions probably averted deeper problems.
"Treasury, working with the Federal Reserve, the FDIC (Federal Deposit Insurance Corp.) and other regulators, has taken the necessary steps to prevent a financial collapse," the report said.
"The most important evidence that our strategy is working is that Treasury's actions, in combination with other actions, stemmed a series of financial institution failures. The financial system is fundamentally more stable than it was when Congress passed the legislation."
The report said there are signs of an easing of the credit crisis since the legislation was enacted, including a lowering of the key LIBOR, or London interbank rate used for loans between banks.
But the report said a broader economic recovery will take time, but that the program including vast capital injections into commercial banks will help.
"It is important to note that nearly half the money allocated to the Capital Purchase Program has yet to be received by the banks," the report said.
"Clearly this capital needs to get into the system before it can have the desired effect. In addition, we are still at a point of low confidence -- both due to the financial crisis and the economic downturn. As long as confidence remains low, banks will remain cautious about extending credit, and consumers and businesses will remain cautious about taking on new loans."
On December 10, Congress published an extremely critical report of the Treasury Department's handling of the financial industry bailout to stabilize the US economy.
The 30-page report by the Congressional Oversight Panel -- a commission specially created to monitor the bailout -- raises several areas of concern over the government's execution of the Troubled Asset Relief Program (TARP) that Congress passed on October 3.
The commission called for a clear line of action from the Treasury, after accusing the department of changing its action plan several times.
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