Published: Thursday, 15 Oct 2009 | 10:39 AM ET

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Concluding that some of the nation’s biggest banks are in good enough shape to raise capital from private investors, senior Treasury officials would like more of them to repay billions of dollars in taxpayer money that bailed them out over the last year.

But many of those banks would prefer to keep the money for several more years rather than raise new money and dilute their existing stockholders.

Ten big financial institutions repaid nearly $70 billion in June. But the Treasury said at least several other major financial firms were strong enough to follow suit, and they were debating whether federal bank regulators should send a signal encouraging them to do so.

That would be a big change from the reluctance that Treasury officials displayed for much of this year, when they wanted to make sure that banks had enough capital to shore up confidence in the financial system and to handle their own losses.

Administration officials cautioned that the decisions will be up to the banks’ regulators, and several top regulators warned on Wednesday that the banking industry still faced huge losses tied to commercial real estate, home mortgages and defaults on credit cards. But Treasury officials are keenly aware that profits are soaring at many of the biggest banks. JPMorgan Chase

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[JPM  Loading...      ()   ] reported on Wednesday that it earned $3.6 billion in the last quarter, and analysts expect a string of big gains from other institutions.

Treasury officials said they had not yet prodded any banks to repay the government, and they acknowledged that some institutions were still too troubled to be weaned from the support.

Officials said they did not want banks to reduce their capital buffers. But they said many of the big banks had greatly strengthened their capital positions and were positioned to replace their government money with funds raised through private capital markets. Officials said investors would generally view private capital more favorably than cushions based on taxpayer infusions.

The issue of getting banks to repay the government has political importance. The Obama administration must decide by Dec. 31 whether to extend the $700 billion financial rescue program for an additional year.

The Treasury does not need Congressional approval to extend its authority for another year, but it does need to notify Congress, and any extension would be intensely unpopular. If more banks repay their loans before the Treasury makes that announcement, the news could be much easier to present.

At the moment, Treasury officials say they have more than enough money left in the program to handle any immediate needs. About $200 billion remains either uncommitted or has been repaid, and that amount would increase sharply if more banks repaid the government. Administration officials are still exploring ideas to use some of that extra money to help small businesses get loans and to support the housing market.

But they said their main goal in extending the program would be to preserve some ammunition in case the financial system experiences another round of shocks.

As appealing as it would be to get more banks off the dole, the banking system still has plenty of problems. It is not clear whether federal banking regulators, especially the Fed and the Office of the Comptroller of the Currency, which oversee the big banks and bank holding companies, are as sanguine as Treasury.

“The banking system remains fragile,” Daniel K. Tarullo, a Federal Reserve governor, told the Senate Banking Committee on Wednesday. “Although capital ratios are considerably higher than they were at the start of the crisis for many banking organizations, poor loan quality, subpar earnings, and uncertainty about future conditions raise questions about capital adequacy for some institutions.”

John C. Dugan, the comptroller of the currency, expressed similar caution. “We anticipate additional capital and reserves will be needed to absorb the potential losses in banks’ portfolios,” Mr. Dugan warned Senate lawmakers on Wednesday.

Some big banks are lobbying hard for permission to repay the government to free themselves from the restrictions as well as the taint of weakness that come with the money.

Bank of America, which has received a total of $45 billion and is still groaning from losses tied to Merrill Lynch and Countrywide Financial, has argued for months that it was strong enough to exit the program.

But other big banks have almost reversed roles with the Treasury, compared with a year ago. Instead of being reluctant to take government money, as some were when the program was started last October, they are now reluctant to part with it.

“Those who didn’t pay it back in the first wave have been concerned about preserving shareholder value,” said Wayne Abernathy, executive vice president of the American Bankers Association. “If you do it early, you have to go out and raise new money, which dilutes the value of existing shareholders. Whereas, if you do it according to the schedule agreed to by Treasury, you can repay it out of your earnings.”

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