The US is starting to pare back its emergency support for banks and financial markets, Treasury secretary Tim Geithner declared on Thursday, saying that the financial system no longer needed extensive government props.

Almost a year since the collapse of Lehman Brothers triggered a financial panic that tipped the world into a deep recession, Mr Geithner said it was time to move from crisis response to recovery.

Pointing to evidence of a healing in financial markets, which only a few months ago had been paralysed by a retreat from risk, Mr Geithner said the US would allow its guarantee for the $2,500bn money market mutual fund industry to expire on schedule this month.

He also backed a review by the Federal Deposit Insurance Corporation that is likely to lead to funding guarantees for banks either being ended completely or restricted to emergency cases. “As we enter this new phase we must begin winding down some of the extraordinary support we put in place for the financial system,” he said. He pointed to success in replacing government capital invested in banks with private capital – a shift officials say rebuts Republican claims that the Obama administration favours big government solutions to problems.

Banks have repaid more than $70bn in emergency bail-out funds and Mr Geithner said “we now estimate that banks will repay another $50bn over the next 12 to 18 months”.

The Federal Reserve emergency loan programmes have already diminished, with the Fed’s commercial paper funding facility down 87 per cent from its peak, and its cash auction scheme down 57 per cent. Financial markets were unruffled by the talk of unwinding support, with the S&P 500 index hitting a new high for the year even as long-term bonds rallied. “Every investor I talk to keeps mentioning that there is a lot of cash to be invested,” said Ajay Rajadhyaksha at Barclays Capital.

The Treasury secretary made no mention of an “exit strategy” from fiscal and monetary stimulus. Instead, he said “we must continue reinforcing recovery until it is self-sustaining and led by private demand”.

Nonetheless, the timing of the strategic shift towards pulling back support for financial markets is symbolic. The money fund guarantees, bank recapitalisation programme and funding guarantees were all put in place soon after the Lehman collapse.

A Treasury official said the administration wanted to “reduce our footprint in various areas of the markets” but did not intend to end support overnight. He said the administration would continue to press on with initiatives on foreclosure mitigation and small-business credit, both areas where critics say it has not yet done enough.

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