WASHINGTON: The 700-billion-dollar 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.

"The TARP foreclosure prevention program has only permanently modified a small fraction of eligible mortgages, and unemployment is the highest it has been in a generation," it said.

"Whether these goals can effectively be met through existing TARP programs is very much an open question at this time."

The report said that by coming the aid of the troubled housing market, the US government effectively "has become the mortgage market, with the taxpayer shouldering the risk that had once been borne by the private investor."

More broadly, the report said the underlying problems that led to the financial crisis remain, including the continued existence of financial firms that are "too big to fail" and engaging in practices that can destabilize the system.

"The substantial costs of TARP -- in money, moral hazard effects on the market, and government credibility -- will have been for naught if we do nothing to correct the fundamental problems in our financial system and end up in a similar or even greater crisis in two, or five, or 10 years' time," the document said.

"It is hard to see how any of the fundamental problems in the system have been addressed to date."

It noted that among the "huge, interconnected, 'too big to fail' institutions (which) contributed to the crisis," are now even larger, "in part because of the substantial subsidies provided by TARP and other bailout programs."

TARP also may be contributing to the incentives to take more reckless risks, the report said: "The market is more convinced than ever that the government will step in as necessary to save systemically significant institutions."