Geithner Says Banks Need to Take Risks to End Slump U.S. Treasury Secretary Timothy Geithner said that for the U.S. economy to recover from the recession, banks need to show more willingness to take risks and restore lending to businesses.
“To get out of this we need banks to take a chance on businesses, to take risks again,” Geithner said today on the ABC News program “This Week.”
The Treasury secretary announced this month a plan to remove toxic assets from the books of the nation’s banks with a public-private partnership to finance the purchase of illiquid real-estate assets. The program will ensure banks emerge from the crisis “cleaner” and “stronger,” Geithner said.
The plan will create public-private partnerships to purchase as much as $500 billion of bad debts and securities from banks. The aim is to allow the banks to remove tainted assets, attract private capital and resume active lending, according to Geithner.
“The great risk is that we do too little rather than too much” to revive credit and stem what economists say may be the worst recession in seven decades, he said.
The Treasury Department has about $135 billion left in bailout money for use to help end the crisis. He declined to say whether the department will ask Congress for more funds.
“If we get to that point, we’ll go to the Congress and make the strongest case possible and help them understand why this will be cheaper over the long run to move aggressively,” Geithner said. Increases in housing purchases and small business lending indicate government aid is reviving markets, he said.
‘Progress and Impact’
“Where we are acting we are seeing progress and impact,” Geithner said on NBC News “Meet the Press” today.
Geithner’s comments are part of an effort by the Obama administration to leverage public anger over the financial crises to win support for giving the Treasury sweeping new powers.
Geithner proposed last week bringing large hedge funds, private-equity firms and derivatives markets under federal supervision for the first time. A new systemic risk regulator would have powers to force companies to boost their capital or curtail borrowing, and officials would get the authority to seize them if they run into trouble.
The administration’s regulatory framework would make it mandatory for large hedge funds, private-equity firms and venture-capital funds to register with the Securities and Exchange Commission, subjecting them to new disclosure requirements and inspections by the agency’s staff.
Raise Capital
The SEC would be able to refer those firms to the systemic regulator, which could order them to raise capital or curtail borrowing.
The strategy also would require derivatives to be traded through central clearinghouses. And it would add new oversight for money-market mutual funds to reduce the risk of a run on those funds after a shock like last year’s failure of Lehman Brothers Holdings Inc.
The Treasury chief also said regulators should consider new rules requiring banks to set aside extra reserves during boom times to build up a cushion for economic slumps.
The Treasury on March 25 sent Congress its outline for so- called resolution authority, allowing federal regulators to seize and wind down non-bank financial institutions. The Federal Deposit Insurance Corp. already has that power for banks.
The Treasury and FDIC would be the main agencies that handle the resolution of the systemically important financial companies that aren’t banks. The plan uses procedures similar to the way the FDIC handles bank failures, without tapping the Deposit Insurance Fund used to safeguard bank deposits. A new funding mechanism would be used, the Treasury said.
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