Geithner tells bankers not to fear new financial regulations
Tuesday, August 3, 2010
NEW YORK -- Timothy F. Geithner, traveling salesman, swept through Manhattan on Monday making a pitch to skeptical bankers, business leaders and even the mayor.
His central message: Far-reaching financial regulations signed into law by President Obama last month aren't something to fear. Rather, they are the foundation of a stronger economy for the months and years ahead.
"Our system allowed too much freedom for predation, abuse and excess risk," the Treasury secretary told a crowd of 150 business executives, lobbyists and others during a speech at New York University's Stern School of Business. "But as we put in place rules for those mistakes, we have to strive to achieve a careful balance and safeguard the freedom, competition and innovation that are essential for growth."
Even as Geithner spoke to the mostly friendly crowd in Greenwich Village, scores of people in nearby skyscrapers were looking for ways to maintain large profits despite the new rules. Two miles south in the financial district, big banks have been examining everything from how to retool their massive derivatives operations to how to deal with new restrictions on proprietary trading, an activity in which banks trade on their own accounts.
At J.P. Morgan Chase, for example, more than 100 project teams are hard at work trying to anticipate the implications of the new rules and to adjust the firm's businesses accordingly. Similar efforts are underway at other firms, with lawyers in Washington and New York scouring the legislation for their corporate clients.
During his visit Monday, Geithner assumed the role of peacemaker, trying to thaw the chilly relationship that has developed between the Obama administration and the business community. He assured industry officials that the new rules -- many of which they spent millions of dollars and thousands of hours lobbying against -- would create stability while leaving room for businesses to prosper and grow.
He acknowledged the "frustrating, glacial pace" of federal rule-writing and vowed that regulators would move "as quickly as possible" to put new rules in place. He also said regulators would not "simply layer new rules on top of old, outdated ones."
Even on his goodwill tour, Geithner took time to preach a bit to the pinstriped executives. "Your core challenge is to restore the trust and confidence of the American people and your customers and investors around the world," he said. "Don't wait for Washington to draft every rule before you start changing how you do business."
He urged them to end hidden fees and not to push people into loans they can't afford. He urged banks to have the courage to increase lending. He implored firms to change executive pay "so you are not rewarding them for taking risks that could threaten the stability of the financial system."
"You can do all of that right now, even before the first new rule of financial reform is written," he said.
It hasn't been an easy sell. Banks and other firms have continued to pay hefty rewards to top executives. Firms have continued to sit on massive piles of capital, reluctant to hire new workers or ramp up lending until the economy shows more resilience.
Earlier Monday, Geithner had breakfast with New York Mayor Michael R. Bloomberg (I), who over the weekend called the financial overhaul law "a dream piece of legislation for lobbyists and for lawyers" on NBC's "Meet the Press."