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In an address to the Joint Economic Committee, Treasury Secretary Timothy Geithner pushed Capitol Hill to quickly develop a new framework for financial industry regulation.
Geithner suggested that four key principles should underlie bank regulatory reform. The first, he said, is that the financial industry must be regulated consistently. Because firms can change their legal forms relatively easily - from an investment bank to a bank holding company, say - the same rules should apply, irrespective of their corporate status.
The second principle is that regulators' duties must be clear; rule-writing and enforcement should be performed by the same body. Geithner cited the "tremendous institutional capacity, clear lines of authority and single-point accountability" required to effectively regulate large financial firms.
Third, "capital, liquidity and margin requirements" must be raised to ensure the stability of the entire financial system. Also with an eye towards ensuring system-wide stability, Geithner said that the derivatives markets should be more closely regulated and the largest firms should be responsible for the systemic risk they present.
Finally, "too big to fail firms" should not be allowed to exist. To that end, Geithner suggested that the government have the authority to unwind too-big financial firms.
By Steve Monfort
Geithner outlines principles that will guide regulatory reform
In an address to the Joint Economic Committee, Treasury Secretary Timothy Geithner pushed Capitol Hill to quickly develop a new framework for financial industry regulation.Geithner suggested that four key principles should underlie bank regulatory reform. The first, he said, is that the financial industry must be regulated consistently. Because firms can change their legal forms relatively easily - from an investment bank to a bank holding company, say - the same rules should apply, irrespective of their corporate status.
The second principle is that regulators' duties must be clear; rule-writing and enforcement should be performed by the same body. Geithner cited the "tremendous institutional capacity, clear lines of authority and single-point accountability" required to effectively regulate large financial firms.
Third, "capital, liquidity and margin requirements" must be raised to ensure the stability of the entire financial system. Also with an eye towards ensuring system-wide stability, Geithner said that the derivatives markets should be more closely regulated and the largest firms should be responsible for the systemic risk they present.
Finally, "too big to fail firms" should not be allowed to exist. To that end, Geithner suggested that the government have the authority to unwind too-big financial firms.
By Steve Monfort
