The controversial $700 billion bank bailout fund is being extended by the Obama Administration to October 2010.

U.S. Treasury Secretary Timothy Geithner wrote congressional leaders to inform them of the administration's decision to prolong the program partly because the financial system continues to face some downside risk.

For instance,while the Treasury secretary doesn't specifically mention it, there's considerable concern about the effect commercial real-estate loans will have on bank balance sheets on 2010.

Additionally, as President Barack Obama announced yesterday during a speech at the Brookings Institution, he intends to use money from the Troubled Asset Relief Program or TARP to try and stimulate job creation by boosting the growth of small businesses.

An excerpt from Geithner's letter:

Beyond these limited new commitments, we will not use remaining EESA funds unless necessary to respond to an immediate and substantial threat to the economy stemming from financial instability. As a nation we must maintain capacity to respond to such a threat. Banks are still experiencing significant new credit losses, and the pace of bank failures, which tend to lag economic cycles, remains elevated. At the same time, many of the Federal Reserve and FDIC programs that have complemented TARP investments are ending. This creates a financial environment in which new shocks could have an outsized effect — especially if an adequate financial stability reserve is not maintained. As we wind down many of the government programs launched initially to address the crisis, it is imperative that we maintain this capacity to respond if financial conditions worsen and threaten our economy. However, before using EESA funds to respond to new financial threats, I would consult with the President and Chairman of the Federal Reserve Board and submit written notification to the Congress. This capacity will bolster confidence and improve financial stability, thereby decreasing the probability that it will need to be used. This is the third element of our exit strategy.

 

In order to accomplish these goals, pursuant to Section 120(b) of EESA, I certify that I am hereby extending the authority provided under the Act to October 3, 2010. This extension is necessary to assist American families and stabilize financial markets because it will, among other things, enable us to continue to implement programs that address housing markets and the needs of small businesses, and to maintain the capacity to respond to unforeseen threats, as described above.