The projected long-term cost of the government's bailout of the nation's big banks is going to be at least $200 billion less than previously thought, a United States Treasury Department official said on Sunday night.

The Obama administration had estimated the cost to taxpayers of the $700-billion Troubled Asset relief Program, or TARP, would be $341 billion but now says it can cut that by $200 billion.

That improvement is driven by the fact that Treasury's investments to stabilize the system are delivering higher returns than anticipated and that Treasury does not anticipate having to draw upon the full $700 billion in TARP authority, the Treasury official said.

Congress approved the TARP program when the financial crisis was raging last year so that the government could inject money into ailing banks and keep them dragging the whole financial system down.

It has never been popular politically so the administration is eager for any good news to tamp down anger at the bailouts.

With markets now firming up and banks lining up to repay their TARP funds, Treasury now will have some room to consider whether and how some TARP funds can be used for other purposes like job creation and deficit reduction.

Taxpayers will pay less than previously thought, and the deficit and debt will be lower, Treasury said. The budget deficit hit a record $1.4 trillion in fiscal 2009 and is expected to be around the same in fiscal 2010 because of the government's huge borrowing needs.

In the past week, Bank of America said it intends to repay $45 billion of TARP funds and, once that happens, some $116 billion of bailout funds will have been repaid. Treasury said it now estimates that $175 billion will be repaid by the end of 2010.

(Reporting by Glenn Somerville; Editing by Jan Dahinten)

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