Treasury Secretary Paulson calls bank system sound

WASHINGTON -- Treasury Secretary Henry M. Paulson Jr. sought to reassure an anxious public today that the banking system was sound, while also bracing Americans for more troubled economic times ahead.

"I think it's going to be months that we're working our way through this period -- clearly months," he said.

Paulson, appearing on several TV talk shows, said the number of troubled banks would increase as they struggled to cope with big losses on bad mortgages. The government this month took over Pasadena-based IndyMac Bank after steep losses on home loans and a run on deposits led it to fail.

"Of course, the list is going to grow longer given the stresses we have in the marketplace, given the housing correction. But again, it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation," he said on CBS' "Face the Nation."

Paulson used his appearances to remind depositors that accounts up to $100,000 are fully insured by the government. He said no one had lost a single penny on an insured deposit in the 75 years that the Federal Deposit Insurance Corp. has operated.

"We're going through a challenging time with our economy. This is a tough time. The three big issues we're facing right now are, first, the housing correction, which is at the heart of the slowdown; secondly, turmoil of the capital markets; and thirdly, the high oil prices, which are going to prolong the slowdown," he said.

"But remember, our economy has got very strong long-term fundamentals, solid fundamentals. And you know, your policymakers here, regulators, we're being very vigilant."

Paulson said he hoped Congress soon would approve his plan to help shore up Fannie Mae and Freddie Mac, the government-sponsored mortgage companies.

"I'm very optimistic that we're going to get what we need from Congress here, because Congress understands how important these institutions are," Paulson said.

The House plans to vote Wednesday on a housing bill that is expected to include a rescue for Fannie Mae and Freddie Mac. The companies' shares have plummeted because of fears about their financial stability. Fannie Mae and Freddie Mac are private, but they were created by Congress to encourage homeownership by buying mortgages from banks. The two hold or guarantee more than $5 trillion in home loans -- almost half of the nation's total.