Timothy Geithner, the US Treasury Secretary, told Congress that it was vital the Government protected the remaining $124 billion in its $700 billion bailout fund.

But he declined to elaborate on how the Government would extricate itself from the multi-billion dollar investments it had made in some of the country's biggest banks.

The Treasury Security was testifying to the Senate Banking Committee, as several banks await information on when they will be permitted to repay the bailouts they received from the Troubled Asset Relief Program (Tarp).

Mr Geithner said that that the Government's injection of funds across the financial system meant that the system was starting to heal but added that America still faced a "very challenging economic and financial environment".

Because of the potential pitfalls that lay ahead, Mr Geithner said that it was important to conserve the $123.7 billion left in the Tarp, which was introduced by the Bush Administration last October.

He said, however, that he was not prepared to talk yet about how the Government might get back the money it paid for preference shares in more than 500 banks.

Several banks, including JP Morgan Chase, Goldman Sachs, Morgan Stanley and American Express, have said that they want to repay their Tarp money and retrieve their preference shares as soon as possible.

The Treasury is expected to give more details on the repayments in the second week of June, when the banks found to have capital shortfalls in recent Government stress tests have a deadline to submit plans on how they will boost their capital buffers.

Mr Geithner told the committee that the controversial stress tests, which looked at whether the 19 biggest banks in the US had sufficient capital to withstand a deterioration in the economy, had been helpful in improving confidence in the financial sector.

The banks have raised more than $56 billion to boost their capital ratios, including $34 billion in common equity capital.

Bank of America said that it had raised $13.4 billion in a share sale to put towards its $33.9 billion capital shortfall - the largest identified by the tests.

The Treasury expects the banks to repay about $25 billion of their bailouts this year.

Mr Geithner said that another bailout initiative, in which private investors would form funds using some Government capital to buy toxic assets from the banks, would start running over the next six weeks. More than 100 funds have applied to take part.

Senators on the committee complained about the waste of money involved in the rushed Tarp bailout, including the rescue of AIG, which is surviving on a $80 billion taxpayer loan.

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