US Treasury Secretary Henry Paulson on Monday said that financial institutions should seize the opportunity to raise fresh capital if they think they need it, for both their own good and the sake of the wider economy.
"The big message that I am giving to financial institutions is that if you think there is any likelihood that you are going to need capital, and it is available today, go get it," Paulson said during a question-and-answer session after a speech to an economic policy conference.
"Because then it is better for you and the overall economy, much better than shrinking your balance sheet," he said. Lenders have suffered multibillion-dollar losses from the crisis in the subprime mortgage market, which has also chilled US growth and sparked a global credit crunch.
Paulson said that markets were adjusting, but warned that this healing process might be prolonged. "It took some time to work up these excesses in housing and credit markets, so it is not surprising that it is taking some time to work through this," he told the conference, organised by the National Association of Business Economics.
"Market participants are adjusting. We're seeing disclosures. We're seeing them raise capital, which I think is very, very important; we're seeing them re-price risk," he told the audience.
Worry over the outlook for the United States, which has prompted the Federal Reserve to slash its benchmark fed funds rate by 225 basis points to 3 percent since mid-September, has forced the dollar to record lows.
"A strong dollar is in our nation's interest," he told Bloomberg Television. "The long-term (US economic) fundamentals are very solid and they're going to be reflected in our currency," he said. The dollar was little changed against a basket of currencies in late morning trading, after hitting a new all-time low against the euro earlier in the day.
In his speech, Paulson said proposals for a taxpayer-funded government intervention in the US housing market would essentially reward people for taking excessive risks.
"Most of the proposals I've seen would do more harm than good - bailing out investors, lenders or speculators who, instead of getting a free pass, should be accountable for the risks they took," Paulson said in remarks prepared for delivery at an economic policy conference. "Let me be clear: I oppose any bailout."
His comments opposing a housing-related bailout mirrored remarks he made last Thursday to the Economic Club of Chicago. Paulson said he was encouraged by data from the Hope Now alliance of mortgage lenders, servicing companies and counsellors showing that workouts were up 11 percent in January - more than double the growth rate of foreclosure starts.