Timothy Geithner's realm grows with passage of financial regulatory reform

Now that President Obama has signed his financial overhaul bill into law, here's a look at who in Washington has played an important role in deciding its fate.
By David Cho
Saturday, July 17, 2010

Half a year after some predicted he would be booted from the Obama administration, Treasury Secretary Timothy F. Geithner stands to inherit vast power to shape bank regulations, oversee financial markets and create a consumer protection agency.

Few Treasury secretaries have had such sweeping influence over such a wide realm as Geithner will wield once President Obama signs the new financial overhaul legislation passed this week by Congress.

The effort to dramatically expand financial regulation bears the stamp of no one more than Geithner. The bill not only hews closely to the initial draft he released last summer but also anoints him -- as long as he remains Treasury secretary -- as the chief of a new council of senior regulators. The legislation also puts him at the head of the new consumer bureau until a director is confirmed by the Senate, allowing Geithner to mold the watchdog in coming months. And it will be up to him to settle a raft of issues left unresolved by the bill -- for instance, which financial derivatives will be subject to the tough new trading rules and which risky activities big banks will be required to spin off.

The legislation "will help restore the great strength of the American financial system, which -- at its best -- develops innovative ways to provide credit and capital, not just for our great global companies, but for the individual with an idea and a plan," Geithner said to reporters shortly after the bill was approved. Obama will sign the bill in the middle of next week, according to White House officials.

It has been a remarkable turnaround for the 48-year-old Treasury secretary, who endured repeated calls for his head from lawmakers a few months ago. Anger over the Treasury's bailout of troubled banks was high. The unemployment rate was soaring. In a January interview, Geithner called the hubbub over his job security "a price of this office."

In the wake of the bill's passage, there is recognition within the administration as well as on Capitol Hill that Geithner is not going anywhere anytime soon. White House officials said the speculation earlier this year about his tenure misunderstood his standing within the administration.

These officials said Geithner endeared himself to Obama and senior White House advisers by advocating a response to the financial crisis that later proved correct. Geithner vigorously resisted calls by some lawmakers and financial experts to nationalize the nation's largest and most troubled banks during the most perilous days. Instead, he helped get the financial system back on its feet, in particular by pressing for stress tests of big banks. The results of these tests showed that nearly all the banks would be able to weather the financial storm and quickly restored investor confidence.

The campaign to win passage of the financial regulatory bill has been driven primarily by the Treasury, showing that Geithner has gained significant latitude within the administration, a far cry from the early days when senior White House officials kept close watch over his public statements and sought to burnish his image.

"This is a very substantial victory for the president, and it is a credit to Tim's leadership that we have achieved so comprehensive a reform so quickly," said Lawrence H. Summers, director of the National Economic Council and a senior adviser to Obama.

Geithner has not won every battle over the legislation. Notable losses include measures added by lawmakers that would exempt auto dealers and banks with less than $10 billion in assets from new consumer protection rules. These firms represent a significant proportion of the financial industry.

But the bill broadly reflects his faith in regulators and his overriding belief that large financial companies can be protected from upheaval if they set aside large enough capital reserves. His has been a middle course, rejecting the era of deregulation that preceded the financial meltdown but also dismissing proposals to fundamentally restructure the financial industry, for instance by cutting the nation's biggest banks down to size.

In an interview last summer, as his team was drafting its version of the bill, Geithner said the heart of any financial reform effort must consist of "three things: capital, capital, capital."

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