Benedict Geithner Speaks

Right from the Horses Mouth-

http://www.treas.gov/press/releases/tg176.htm


GEITHNER ON WHETHER IT WOULD MAKE SENSE TO BAR PEOPLE INVOLVED IN
REGULATORY OVERHAUL FROM BECOMING FED CHAIRMAN:

"No, I don't think that would be appropriate nor do I think that would be necessary."

GEITHNER ON FINANCIAL OVERSIGHT COUNCIL:

"We are giving the council the power to collect information, the
responsibility to look across the system and the power to recommend changes,
but not the power to compel or force changes because that would fundamentally
change and qualify the underlying statutory responsibilities of those agencies
and I think that would create the risk of more confusion and less
accountability, frankly. But you know that's a difficult balance to get, I'm
not sure we got the balance perfect, but I think that to invest in a committee,
responsibility to force those kind of changes would I think lead to more
diffusion of accountability and more uncertainty."

GEITHNER ON CUTTING U.S. BUDGET DEFICIT:

"A critical part of getting recovery in place is going to be to convince
the American people and investors around the world that we are going to have
the will, working with Congress, to bring those deficits down over time."
"We started with a deficit in the range of 10 percent of GDP when we came
into office ... and the additions we have made, proposed with the Congress to
get us out of recession will modestly contribute to those deficits and we
believe they were necessary to avoid the risk of a deeper recession and even
higher future deficits."

GEITHNER ON FED NEEDING TREASURY APPROVAL FOR LENDING:

To require the Fed to seek Treasury approval to lend to firms it has no
supervisory authority over "is an important change; but we believe -- at least
the chairman of the Federal Reserve believes -- that is a very appropriate and
justifiable change, in part because of the concerns expressed by many of your
colleagues, understandably, about the Fed being pulled into doing things that
go well beyond its classic responsibilities of being the lender of last
resort. I think it is a very consequential act for the Fed to lend to an
institution that it has no supervisory relationship over. It creates an
enormous risk of moral hazard. To limit that authority in the future is a way
to help reduce the risk of moral hazard, by the exceptional response the
government's made in this case."

GEITHNER ON EXTENDING TARP AUTHORITY PAST DEC 31

"I haven't made that judgment yet and I don't think we are in a position to
make that judgment. There are some important signs of stability, some important
signs of healing in the financial sector, but I think it's too early, premature
to make that judgment."

GEITHNER ON CLOSING BANKING LOOPHOLE FOR INDUSTRIAL LOAN COMPANIES:

"Institutions that do things that are basic banking activities, they
transform short-term liabilities into long-term assets, need to come within a
common framework of standards and restraints and oversight. If we do not do
that then all the risk in the system will migrate to those parts of the system
where you can do similar activities but not be subject to the same basic
standards. So our basic principle is a simple one. We want to eliminate those
gaps and loopholes that allow institutions to evade those basic standards."

GEITHNER ON FED INDEPENDENCE, OVEREXTENSION

"It is very important ... that the Fed preserve its independence and
accountability for achieving sustainable growth and price stability over time.
At its inception, the Fed was given this mix of responsibilities, both for
price stability and for a range of responsibilities that stray into the area of
financial stability -- it is the lender of last resort to the country. I don't
believe there is any conflict between those two responsibilities. I think the
record of the Fed justifies that judgment. But we want to preserve that.
In part because of that, being careful that we make sure that the Fed isn't
overextended, we're scaling back some of their responsibilities even as we
tighten accountability and responsibility in those core areas."

GEITHNER ON PRESERVING FED INDEPENDENCE:

"We are very committed, and it is very important, that we preserve the
independence of the Fed, and its basic credibility of its responsibilities for
monetary policy. And we would not recommend proposals that would limit or put
that at risk in some sense because that is important to any effort to build a
well-functioning economy in the future. If we lose that credibility, that would
be very damaging."

GEITHNER ON FUTURE ROLE OF GSES

"Fannie and Freddie were a core part of what went wrong in our system.
Congress did legislate last year a comprehensive change in oversight regime and
just to be fair, we did not believe we could in this timeframe lay out central
or federal reforms to guide or determine what their future role should be after
the crisis. We want to do that carefully and well. We are going to begin a
process of looking at broader options for what their future should be and what
the future role of those agencies in the housing market will be.

GEITHNER ON GIVING THE FED MORE RESPONSIBILITY

"Central banks everywhere and in this country are vested with the dual
responsibility for both monetary policy and some role in systematic financial
stability. That's true here and it's true everywhere. There is no necessary
conflict between those two roles. For the example, the Fed has an exemplary
record of keeping inflation low and stable for the last 30-years even though it
had these kind of responsibilities you have outlined that take it into the area
of financial stability. So I see no conflict. The second point I want to make
is the following. If you look at the experiences of countries in this crisis,
who have taken away from their central banks and given those responsibilities
for financial stability and supervision to other agencies -- I think they found
themselves in a substantially worse position that we did as a country. A worse
crisis, with more leverage in the banking system, less capacity to act when the
crisis was unfolding. Our proposal for additional authority within the Fed are
actually modest and build on their existing authority.

SENATOR RICHARD SHELBY ON FED ACCOUNTABILITY:

"With decision-making authority dispersed to the (Fed) Board and the
reserve banks, who will be accountable to Congress for the systemic risk,
regulation function, as the 'system' cannot appear to testify right here before
Congress?"

GEITHNER ON NOT BANNING INDIVIDUAL FINANCIAL PRODUCTS:

"I know that some suggest we need to ban or prohibit specific types of
financial instruments. ... In general, however, we do not believe you can build
a more stable system based on an approach of banning on a periodic basis
individual products because those risks will simply emerge quickly in new
forms. Our approach is to let new products develop, but to bring them into a
regulatory framework with the necessary safeguards in place."


SHELBY ON FED STRUCTURE, ROLE AS REGULATOR:

"I do not believe we can reasonably expect the Fed or any other agency to
effectively play so may roles. In addition, the Federal Reserve was provided a
unique, independent status to ensure world ... markets that monetary policy
will be insulated from political influence."
"The structure of the Federal Reserve involves quasi-public reserve banks
that are under the control of boards with members selected by banks regulated
by the Fed. By design, the board and the reserve banks are not directly
accountable to Congress and are not easily subject to congressional oversight.
Recent events have clearly demonstrated that the structure is not appropriate
for a federal bank regulator, let alone a systemic regulator.

GEITHNER ON CONSUMER PROTECTION:

Consumer protection is a critical foundation for our financial system. It
gives the public confidence that financial markets are fair and enables policy
makers and regulators to maintain stability in regulation. Stable regulation,
in turn, promotes growth, efficiency, and innovation over the long term.

GEITHER ON REGULATION OF HIGHLY LEVERAGED FIRMS:

Under our proposals, the largest, most interconnected, and highly leveraged
institutions would face stricter prudential regulation than other regulated
firms, including higher capital requirements and more robust consolidated
supervision. In effect, our proposals would compel these firms to internalize
the costs they could impose on society in the event of failure.