When TARP was formed last autumn the economy had gone into free fall, with experts warning that even worse dangers could be in store: namely a complete seizure of the banking system thanks to the then-uncharted toxic assets bloating many banks' balance sheets. Since then, conventional wisdom has decreed the worst danger passed. This sense of a near-miss was further emphasized earlier this year when the nation's banks did surprisingly well in the Treasury Department's widely watched stress tests.

According to the TARP panel, though, we may have sighed with relief a little too soon. "The problem of troubled assets was long in the making, and it would be foolish to think that it could be resolved overnight," it said in its August oversight report. "It would be equally foolish to think that the risk of troubled assets has been mitigated or that it does not remain the most serious risk to the American financial system."

Risks to the financial systems still include ongoing unemployment and a possible collapse of the commercial real estate market. Also, despite the relaxation of mark-to-market accounting rules, banks could easily find themselves in the position of having to raise additional capital if their non-performing assets are worth even less than the balance sheets currently indicate.