"Pro-Growth, Pro-Investment"

Capital
by Portfolio.com Editors


Now that financial regulatory reform has been signed into law, the Obama administration has made the transition from demonizing Wall Street to reassuring it.

Today, Treasury Secretary Timothy Geithner traveled to New York to deliver a speech on how the administration would implement the sweeping legislation. He made it sound as if Wall Street has nothing to fear, but he did advise the financial industry to “get ahead of the process” and treat their consumer and business customers fairly before the new regulations go into effect.

“The reforms that are now the law of the land will help us rebuild a pro-growth, pro-investment financial system,” Geithner said.

Consumers won’t be taken advantage of, and businesses will be able “to finance growth with less risk that they will be starved for credit the next time we face an economic downturn,” he said.

The government’s core challenge is to make sure that financial regulatory reforms “provide both the necessary protections against financial excess and the benefits of financial innovation,” Geithner said.

The Treasury secretary promised speed, transparency and simplification in writing the new rules of the road.

“We will not simply layer new rules on tops of old, outdated ones,” he said.

“We will eliminate rules that did not work. Wherever possible, we will streamline and simplify.”

Regulatory agencies will work together, not against each other. Obama administration officials will “look carefully at the overall interaction of regulations designed by different regulators and assess the overall burden they present relative to the benefits they offer.”

Geithner also promised the administration will work on “setting high global standards” for financial institutions and “blocking a race to the bottom from taking place outside the United States.”

All of this will take some time, he said, but in September, the Financial Stability Oversight Council will meet for the first time and establish an “integrated road map for this first stages of reform and put that in the public domain.”

One of the first steps will be in the area of consumer protection. Next month, mortgage companies, consumer advocates and housing experts will meet to provide ideas on how to combine the two inconsistent federal mortgage disclosure forms that homebuyers now receive into one easy-to-understand form, he said.

The public will be asked to provide comments on new national underwriting standards for mortgages.

Geithner also promised action on some unfinished business—reform of Fannie Mae and Freddie Mac, the government-sponsored enterprises that helped create the financial crisis by their insatiable appetite for subprime mortgages. The Treasury Department will hold a conference this month on how the housing finance market should be reformed, and will present its plan to Congress in January.

The Treasury Department also will work with the Federal Reserve, the Securities and Exchange Commission, and the Commodity Futures Trading Commission to set specific targets on moving the standardized part of over-the-counter derivatives trading onto central clearing houses.

The department also will work on an international agreement that will “make sure financial firms hold a lot more capital than they did before the crisis” and “meet these requirements with common equity so they can better absorb losses,” he said.

Geithner, however, said banks will have until 2013 to meet the new minimum capital requirements.

“If we set them too high too fast, we could hurt economic recovery or simply end up pushing risk outside of the banking system, something that could ultimately come back to haunt us,” he said.

Geithner said financial reforms “will be tough, but they will be toughest on those who took the greatest risks.”

Businesses as a whole will benefit from these reforms because they will “provide a more stable source of financing for the investments that will drive future gains in income and future growth,” he said.

From Portfolio.com published on Aug 02 2010 5:34pm EDT