Image caption Big Wall Street banks have repaid bailout funds but many smaller firms are struggling

US taxpayers are unlikely to get all their money back from a $700bn (£432bn) bailout of the country's stricken banking and automotive sectors, according to a report.

The Troubled Asset Relief Program calmed markets and underpinned the US economy during the financial crisis.

But despite the US Treasury saying last week that Tarp would make a profit, the latest report suggests otherwise.

The report said it was a "misconception that Tarp will make a profit".

The Office of the Special Inspector General for Tarp has published its latest report to Congress.

It said: "After three-and-a-half years, the Tarp continues to be an active and significant part of the Government's response to the financial crisis.

"It is a widely held misconception that Tarp will make a profit. The most recent cost estimate for Tarp is a loss of $60bn. Taxpayers are still owed $118.5bn."

Still struggling

The complexity of the programme and repayment calculations has led to widespread debate in the US over whether taxpayers will see a return on Tarp.

Official estimates of the profit that could be made have ranged from $2bn to $163bn over the next decade or more.

But Tarp said that many of the smaller banks rescued during the crisis are still struggling to repay Tarp bailout money.

There are still 351 regional and community banks in the bailout programme.

Under Tarp , the Treasury Department took shares and warrants in firms drawing on bailout funds.

Companies have to buy the stock back to exit the program. More than 700 banks were bailed out, and most of the major institutions have repaid money in full.

But the weak US economic recovery and fragile business confidence has prevented many smaller banks from exiting Tarp.

An additional problem is that from 2013 banks face an increase in the dividend they pay to the Treasury under Tarp . This will rise from 5% to 9%.

Some 95 of the banks still owing Tarp money had missed six or more dividend payments, Tarp said. This gives the Treasury the right to appoint directors to their boards, though it had done so only at nine banks by 31 March.

'Moral hazard'

The report emphasises that Tarp is "more than just dollars and cents" and was vital to avert financial catastrophe.

But it says that the rescue "is not without profound long-term consequences. A significant legacy of TARP is increased moral hazard and potentially disastrous consequences associated with institutions deemed too big to fail.

"Getting these banks back on their feet without Government assistance must remain a high priority of Treasury and the federal banking regulators," Tarp said.

Treasury official Tim Massad, the assistant secretary for financial stability, said on Thursday that Tarp's bank programmes had already recovered more than was invested through repayments and dividends.

"While there's no one-size-fits-all approach, you'll continue to see us make significant additional progress winding down the program in the year ahead through repayments, sales and other methods," he said.