Geithner: don't declare victory too soon in crisis

WASHINGTON (Reuters) - Treasury Secretary Timothy Geithner said on Thursday the government had to beware declaring victory too soon after managing to avert complete financial collapse by bailing out the nation's banks.

"History suggests that exiting too soon from policies designed to contain a financial crisis can significantly prolong an economic downturn," he told a congressional panel that oversees the Troubled Asset Relief Program or TARP.

Geithner said investments made in banks through TARP were returning more money sooner than thought and the next few weeks will bring "substantial income" from more sales of warrants to buy stock in banks that are repaying bailout money.

But Geithner said he had requested that TARP be extended through next October 3 in order to be able to respond if necessary should financial conditions suddenly worsen.

"It is imperative that we maintain this capacity to respond if financial conditions worsen and threaten our economy," Geithner said, adding that before he would commit more funds "I would consult with the president and Chairman of the Federal Reserve Board and submit written notification to Congress."

He said that while confidence in the financial system's strength has rebounded, "the financial and economic recovery still faces significant headwinds."

He identified issues including high unemployment rates and foreclosure and delinquency rates for home mortgages and partially impaired securitization markets as lingering points of weakness.

The Congressional Oversight Panel on Wednesday released its assessment of the TARP program, conceding that while it had helped stabilize the financial system it had not succeeded in boosting lending.

In addition, it failed to resolve the issue of too-big-to-fail financial institutions and in fact created an implicit guarantee that the government would again bail them out if they got into serious trouble.

(Reporting by Glenn Somerville; Editing by Andrea Ricci)