July 13 (Bloomberg) -- Treasury Secretary Timothy Geithner said the U.S. government has the authority and the ability to address the crisis at CIT Group Inc.

“I’m actually pretty confident in that context we have the authority and the ability to make sensible choices,” he said in response to a question at a press conference in London. “We have a significant interest generally in trying to make sure the financial system gets through this, adjusts where it needs to adjust and emerges stronger.”

CIT, a century-old lender based in New York, hasn’t been able to persuade the government to back its debt sales and says its failure risks the demise of its customers. Geithner declined to comment on measures the government might take, such as providing a debt backstop or additional capital from the $700 billion Troubled Asset Relief Program.

“Obviously in that case, as always, we’re watching closely developments in those markets,” Geithner said.

CIT’s bonds and shares have tumbled on concern that it won’t have access to the Federal Deposit Insurance Corp.’s bond guarantee program, created last year to help unfreeze debt markets. The company’s failure would be the biggest collapse of a financial institution since September.

Better Procedures

Geithner, speaking at a press conference after meeting U.K. Chancellor of the Exchequer Alistair Darling, reiterated his call for better procedures for handling the failure of a major institution. He said the U.S. does not, however, require those changes to be in place to cope with CIT.

Government efforts to pull the U.S. out of a recession and battle the financial crisis have shown some signs of progress, Geithner said. President Barack Obama’s administration is implementing a $787 billion economic stimulus plan while the Federal Reserve has pumped $1 trillion into the banking system over the past year.

Macro-economic policy has been “relatively effective so far in arresting the freefall in economic activity and bringing some stability to basic demand,” Geithner said. “In the United States and elsewhere we see very substantial progress in the stability of the financial sector, and starting to open up credit markets, bringing down the cost of credit.”

The U.S. economy continues to reel from the effects of the credit crisis, which has cost banks worldwide almost $1.5 trillion in credit losses and writedowns from bad loans. Gross domestic product shrank at a 5.5 percent annual rate in the first quarter, capping the worst six-month performance in half a century.

“There is no surprise, I think, that this is going to take us a while to get through,” Geithner said. “We have a very powerful set of policies in place. I think there is a very good chance we will see the U.S. economy and the world economy get back to recovery, get growing again over the next few quarters.”

To contact the reporters on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net; Jennifer Ryan in London at Jryan13@bloomberg.net

Last Updated: July 13, 2009 09:56 EDT