US: Credit Market

Credit Market Turmoil 'Far From Over': Treasury Official


A senior U.S. Treasury Department official warned Wednesday that turmoil in credit and mortgage markets was "far from over" and policy-makers must remain vigilant to the need to protect the broader economy.

"I do want to caution policy makers that this process is far from over," Treasury Undersecretary Robert Steel said in prepared testimony for delivery to the U.S. House of Representatives Financial Services Committee.

Steel said segments of the nation's capital markets were under stress as risks are repriced in ways that will affect the balance sheets of some financial market participants.

"Policy makers must remain vigilant as further stress could create further challenges and continued volatility," he said.

Steel noted that the Federal Reserve already has taken actions to increase liquidity in financial markets and said that has helped to stabilize them.

"The ultimate impact of these events on the economy has yet to play out," he said but noted that the turmoil in markets was occurring against a backdrop of generally strong economic conditions.

"Like the Federal Reserve, the Treasury Department shares the perspective that recent market developments pose downside risks to economic growth," Steel said.

"However, the economy was in strong condition going into the recent period of volatility, and while certain sectors like housing are undergoing a transition, overall economic fundamentals remain solid," he said, adding that should permit continued expansion.

He said the President's Working Group on Financial Markets -- an inter-agency group headed by Treasury Secretary Henry Paulson -- will examine the role of rating agencies and of the securitization of subprime mortgagees in credit and mortgage markets.

Securitization refers to the practice of bundling subprime mortgages, which are loans to less credit-worthy borrowers, into separate securities that are then assigned a rating by an agency and resold to investors around the world.