WASHINGTON - THE US$700 billion (S$958 billion ) US government effort to rescue the financial system has failed to meet key goals such as sparking lending and curbing risky activities by banks, a special auditor said Sunday.

The special inspector general for the Troubled Asset Relief Program said in a report to Congress that it is too soon to measure the overall success of the program passed at the height of the financial crisis in October 2008.

The quarterly report said that because of Tarp, 'there are clear signs that aspects of the financial system are far more stable than they were at the height of the crisis in the fall of 2008.' But the report also stated that 'many of Tarp's stated goals... have simply not been met' and that the potential for a new crisis looms without major reforms.

'Even if Tarp saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car,' the report said.

The program has fallen short in key areas such as boosting credit, curbing home foreclosures and deterring the risky behavior of financial firms that are considered 'too big to fail,' said the report from inspector general Neil Barofsky.

Despite the explicit goal to increase financing to US businesses and consumers, 'lending continues to decrease,' said the report from inspector general Neil Barofsky. It also noted that Tarp has failed to live up to the 'explicit purpose' stated by Congress of 'preserving homeownership and promoting jobs. -- AFP