Tim Geithner, US Treasury secretary, said the ??vast majority? of the nation??s banks are well-capitalised and damped investor fears that the government will wipe out their holdings.
His comments, made before a congressional oversight panel, sparked a rally in financial stocks.
However, Mr Geithner conceded the massive effort by the US authorities to rescue the banking system from the crisis was showing only ??mixed? signs of success. Interbank lending, corporate issuance and credit spreads were showing some signs of a thaw in credit, he said, but he added: ??To date, frankly, the evidence is mixed.?
Mr Geithner indicated that the conversion of the government??s preferred equity stakes to common equity ?? a move that would dilute the holdings of existing shareholders ?? could prove part of the solution for weaker banks.
Jeb Hensarling, a Republican representative and member of the panel, said he worried that such a move would convert ??Uncle Sam into a control shareholder of many of our largest financial institutions?.
??That risk worries me, too,? said Mr Geithner. He said he was concerned at the ??potential damage you do to franchise value and expectations across the financial system if you have this expectation of creeping long-term government involvement, government ownership?.
