RPT-UPDATE 1-US banks sound, economy to take time -Paulson

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By Randall Mikkelsen

WASHINGTON, July 20 (Reuters) - The U.S. economy needs months to recover from its slowdown, but the banking system remains sound despite a home mortgage crisis that could cause more problems, Treasury Secretary Henry Paulson said.

Paulson also said on Sunday morning news programs he was optimistic Congress would approve the Bush administration's request for authority to shore up the troubled mortgage giants Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz).

The treasury secretary has been trying to reassure nervous financial markets and is scheduled to deliver an important speech on markets and the economy in New York on Tuesday.

"We're going to be in a period of slow growth for a while," Paulson told "Face the Nation" on CBS. "I think it's going to be months that we're working our way through this period."

High energy prices would prolong the slowdown, but the key to recovery was stabilizing the housing market, Paulson said.

He added that U.S. banking problems were manageable despite this month's highly publicized failure of mortgage lender IndyMac IDMC.PK bank.

The July 11 takeover of the bank by Federal regulators marked the third-largest bank failure in U.S. history. The lines of frustrated depositors outside its doors provided a stark illustration of the U.S. home financing crisis.

"Our banking system is a safe and a sound one," Paulson insisted on CNN's "Late Edition."

He had earlier told CBS, the list of troubled banks would grow. But "this is a very manageable situation ... our regulators are focused on it."

Five U.S. banks have failed this year, compared with an annual average of about 250 during the U.S. savings-and-loan industry crisis in the 1980s, Paulson said..

99 PERCENT HEALTHY

He said about 99 percent of the 8,500 U.S. banks, holding about 99 percent of bank assets, fell into the highest category of capitalization, a measure of financial health.

However at the end of the last quarter, the number of problem banks on the Federal Deposit Insurance Corp.'s watch list rose to 90 with combined assets of $26 billion, up from 76 with $22 billion at the end of 2007.

Ensuring confidence in U.S. financial markets was crucial to reviving the housing industry and the broader economy, Paulson said.  Continued...