U.S. Treasury Secretary Timothy Geithner on Tuesday said difficulty in setting a value on banks' toxic assets was a continuing hindrance to their ability to lend and borrow.

Testifying before the Congressional Oversight Panel that monitors the Treasury's efforts to bail out troubled banks, Geithner said toxic assets were congesting the U.S. financial system and hindering efforts to get credit flowing normally.

Uncertainty about the value of legacy assets is constraining the ability of financial institutions to raise private capital, he said, adding that he hoped a public-private investment program will improve the ability to put a price on troubled mortgage and other assets.

Treasury is currently conducting stress tests on 19 of the largest U.S. banks and will make some of the results public next month. Geithner said the majority of banks have more capital than they need to be considered well capitalized.

However, concerns about economic conditions -- combined with the destabilizing impact of distressed 'legacy assets' -- have created an environment under which uncertainty about the health of individual banks has sharply reduced lending across the financial system, he said.

He said the stress tests will determine whether some banks must raise more capital and will offer options for doing so.

Those banks that need more capital will have an opportunity to raise that capital from private sources or request capital from the Treasury in the form of convertible preferred stock, Geithner said.

(Reporting by Glenn Somerville and Corbett Daly; Editing by Neil Stempleman)

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