The U.S. banking system could be free of government money within a year, the powerful chairman of the U.S. House of Representatives Financial Services Committee said on Tuesday.

Representative Barney Frank, a Democrat from Massachusetts, said it would be good for public confidence if large banks repay funds from the government's $700 billion Troubled Asset Relief Program, noting he had a difference of opinion with Treasury Secretary Timothy Geithner.

We're hoping there won't be any government funds in banks a year from now, Frank told the Reuters Global Financial Regulation Summit.

Frank also said leaks of the results of stress tests on the 19 largest U.S. banks are not helpful and that the results should be released with remedies for banks that are found to need more capital.

The U.S. government has conducted stress tests on the nation's biggest banks to assess their capital needs if the economy deteriorates further.

Officials have said the banks will be expected to hold significant capital above what is needed to be considered well capitalized under regulatory standards.

Frank said he is not sure in what form the government plans to release the results on May 4, but said it is inevitable that the outcomes will become public.

There is demand for this, Frank said. I don't know what level of specificity is needed.

Officials have been coy about how the government plans to release the information, only saying that the results will be made public with capital recovery plans for those banks deemed to need more funds.

PRIVATE MARKETS

Policymakers are hoping banks can turn to the private markets and current stakeholders to raise those funds, or can sell assets to improve their capital buffers.

If those actions are not enough to improve the banks' capital levels, they will have the option to receive more infusions from the government.

We have to make a kind of judgment about what's the appropriate mix of capital for a firm given the risks they are confronting, U.S. Comptroller of the Currency John Dugan told Reuters on Monday. That's going to vary depending on individual firms. It'll vary, frankly, based on the results of the stress tests.

Regarding banks being allowed to repay TARP, Frank said it will distinguish the strong banks from weaker ones. But he said the distinction is not necessarily a bad thing.

He said about 10 percent of the $700 billion TARP fund could be paid back by the end of this year.

But Frank said it would not be wise for the government to change terms to make it cheaper for banks to repay TARP, even though banks have complained about what they say amounts to a prepayment penalty when they buy back the warrants they gave the Treasury Department.

I think that would be a mistake, Frank said. I don't want to be in a position where we say to the public that we had these safeguards and waived them.

(For summit blog: http://blogs.reuters.com/summits/)

(Reporting by Karey Wutkowski; Editing by Derek Caney and Brian Moss)

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