Isolating the effectiveness of the government's $700 billion Troubled Asset Relief Program is proving more difficult than expected, the Treasury Department said Wednesday in a written response to an oversight agency.

However, the department said it does believe that its actions, "in combination with other actions, stemmed a series of financial institution failures."

The 15-page report seeks to answer a series of pointed questions raised earlier in December in the initial report from a special Congressional Oversight Panel led by Harvard professor Elizabeth Warren.

To support its assertion that "the financial system is fundamentally more stable than it was when Congress passed the legislation," the report said that the average credit default swap spread for the eight largest U.S. banks has declined by "about 240 basis points" since the TARP was created.

The department was more circumspect about whether billions of dollars in direct capital injections into banks has done anything to thaw frozen credit markets. Loan issuance in the U.S. in 2008 dropped 55 percent, from $1.69 trillion to $764 billion, making it the slowest year since 1994, Thomson Reuters Loan Pricing Corp. says.

"It is important to note that nearly half the money allocated to the Capital Purchase Program has yet to be received by the banks," Treasury said. "Clearly this capital needs to get into the system before it can have the desired effect."

Even then, it cautioned that the financial crisis and economic slump have combined to erode business and consumer confidence, which naturally dampens demand for loans as well as lenders' willingness to make them.

"As confidence returns, Treasury expects to see more credit extended," the agency said. "This lending won’t materialize as fast as anyone would like, but it will happen much faster as a result of having used the TARP to stabilize the system and to increase the capital in our banks."

The report was vague about how TARP is helping to prevent foreclosures, a key interest of many members of Congress. It a voluntary program to insure refinanced mortgages, and two programs to modify existing mortgages, but gave few specifics on how well any of the initiatives were working.

Seeking to address complaints that TARP tactics changed radically soon after Congress approved the plan, the report said rapidly deteriorating circumstances persuaded Treasury officials that their initial idea of buying illiquid mortgage-backed securities would be too slow and too little to prevent disaster.

To keep the financial system solvent, Treasury Secretary Henry Paulson and his lieutenants decided that they could provide quicker and more meaningful help by investing government money directly into bank holding companies.

"Capital injections," the report said, "provide better 'bang for the buck.' "