Though the government has tried — and failed — twice to create a program to buy troubled assets from banking companies, there is a growing concern that without such a program, financial institutions remain vulnerable if the economic crisis worsens.The Treasury Department is expected to announce today that a few firms have been allowed to repay Troubled Asset Relief Program funds, a sign of government confidence that the worst of the crisis may be over. Regulators have said they would scale back or put on hold a toxic asset plan, because bankers have appeared less willing to sell assets now that they have raised enough private capital to withstand additional losses.

But a growing number of skeptics argue that policymakers have been here before, with regulators confident that capital infusions would be enough to stabilize the banking sector, while toxic assets continued to eat away at balance sheets.

"To the extent that they're holding on to these assets and haven't disposed of them, it's an anchor dragging along the bottom of the ocean," said Arthur Wilmarth, a professor at George Washington University Law School. "It certainly diminishes their ability to make new loans."

Karen Shaw Petrou, managing director of Federal Financial Analytics Inc., said: "The asset problem is there. It was there before the Tarp was put in place before October, and it will be there after the Tarp is gone, because it never addressed the asset problem other than by providing banks with federal dollars in hopes that that would permit writedowns. Now some banks are raising private dollars in hopes to do the same. There's still a lot more to come."

The Treasury first attempted to start a toxic asset purchase program last year, when the $700 billion allocated by Congress was expected to be used to set up an auction for illiquid securities and whole loans. But by the time the bill was enacted, the Treasury concluded that the idea was too complicated, and it opted instead for direct capital injections.

By February, after more panic about the banking sector's health, the Treasury once again announced a plan to buy troubled assets. The Federal Deposit Insurance Corp. would hold auctions for illiquid whole loans while the Treasury tried to finance the sale of troubled securities.

But after the stress tests in May concluded that most of the top 19 institutions had sufficient capital to withstand an adverse economic downturn, the government appeared to give the banking system a clean bill of health. That prompted investor interest in the industry and helped several large banking companies raise private capital.

As a result, regulators put the FDIC program on hold indefinitely, and it remains unclear whether the Treasury's part of the program will get off the ground.

The tests made the toxic asset plan — which has languished as a result of tricky issues related to participation and pricing — less necessary, some argue.

As the "capital has been injected" and "most of these banks have shown the ability to raise money on their own, policymakers have taken one deep breath and said, 'It looks like the worst-case scenario won't happen,' " said Robert DeYoung, a finance professor at the University of Kansas.

But other observers said that the government is taking a risk, and that the system remains fragile. If Wall Street lost confidence in the banking sector again, or other economic problems surfaced, the need for a toxic asset program could become urgent again, these observers say.

"It's important not to overdo the optimistic. There's a lot we don't know yet," said Douglas Elliott, a fellow at the Brookings Institution. "I don't think we will get back to where we were six months ago, but we could be back where the banks need substantially more government capital. We shouldn't assume we are out of the woods."

Some observers argue that the quality of bank balance sheets remain unclear, even after the government tests.

The test results showed that "investors think that the troubled assets are going to come around," said Lawrence White, a finance professor at New York University. "If they are wrong, then we will see Tarp III."

In a report issued Monday, the Bank of International Settlements said central banks should address underlying asset problems to revive the private market.

"The ultimate success of central bank interventions depends on the appropriate design and forceful implementation of policies that address directly the fundamental weaknesses in bank balance sheets," it said.

If a toxic asset program does return, policymakers may have lost critical time. The government has still not figured out a good way to settle on a price that would entice bankers and investors to participate. As bankers figured out they could raise capital again, any willingness to sell bad assets evaporated.

"Inertia is at work," said Brian Gardner, an analyst with KBW Inc. "Government tends not to act and move unless there's a crisis. We're not in crisis mode right now. … I'm not saying the world is rosy, but we are in a very different place than we were in the fall, when it looked like the world was going to end."

The FDIC has said it continues to work on its part of the program and hopes to test it with failed bank assets this summer.

Still, Gardner said the need for a solution to underlying asset problems could make a sharp return. "It may well come back," he said.

Scott DeFife, a senior managing director of government affairs for the Securities Industry and Financial Markets Association, said that "just because certain banks can repay TARP doesn't mean all the banks can."

"There are still troubled assets out there," he said. "We still think its appropriate to move forward with the asset program even if it ends up not getting used."

Wilmarth said that as the government prepares to sell its shares in several institutions, taxpayers still do not have a clear sense of their health.

"One would have to say that at this point the recovery is very fragile," he said. "What happens if suddenly the economy does a double-dip? Those toxic assets may have improved recently, but they could quickly degenerate if they're still on banks' balance sheets?"

Others said the recent period of confidence could be short-lived.

"Things seem copacetic if not favorable with the banks … but if you dial back a couple months ago, everybody was pretty much in a panic and throwing anything against the wall and seeing what stuck," said William Mutterperl, a counsel at Reed Smith LLP and a former vice chairman for PNC Financial Services Group Inc.

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