Geithner presses for tighter financial regulations in US, around the world

“Better managed firms will suffer the most from weak regulation and it will create conditions again where weaker and poorly managed firms can bring down the financial system,” he said. 

He told the chief executives in attendance that “you should be champions not opponents in getting stronger people in place to implement the new financial rules.”

It “matters more than anything else” because the rules are complicated and the market is changing rapidly. 

Recently, House lawmakers voted to give the CFTC more time to complete new derivatives rules while the House Appropriations Subcommittee on Agriculture supported a 15 percent cut, or  in the agency’s funding despite pleas from Chairman Gary Gensler on the need for the funding. The cuts amount to a $30 million reduction in the CFTC’s annual budget to $172 million from its current level of $202 million.

Senate Democrats will likely oppose the efforts to cut funding for agencies implementing Dodd-Frank, continuing a congressional stalemate on the issue. 

House Republicans have pushed for changes in the financial regulatory reform law enacted last year, saying the regulations represent a government overreach and will burden U.S. businesses. 

Another battle is on the appointment Elizabeth Warren to head the Consumer Financial Protection Bureau, with Democrats supporting her while Republicans unanimous in their opposition. 

Geithner also suggested that other countries need to enact tighter regulations and avoid benefiting from tougher financial market rules in the United States, pushing for global minimum standards on the $601 trillion swaps market.

The House Financial Services and Agriculture committees recently approved legislation that would delay the implementation of new U.S. rules for the derivatives market from July until at least September 2012. 

“We don’t want to see another race to the bottom around the world,” he said. “As we act to contain risk in the U.S., we want to minimize the chances that it simply moves to other markets around the world.” 

International consensus is necessary to avoid risks in derivatives becoming concentrated in those jurisdictions with the least oversight. 

“This is a recipe for another crisis,” he said. 

He said the United Kingdom’s experiment in a strategy of “light touch” regulation to attract business to London away from New York and Frankfurt “ended tragically.”  

“That should be a cautionary note for other countries deciding whether to try to take advantage of the rise in standards in the United States,” he said. 

Geithner later acknowledged that the U.K. is moving forward with positive financial and fiscal changes. 

“So we will do what we need to do to make the United States financial system stronger,” he said. “We will do so carefully. And as we do it, we will bring the world with us.”