Obama Plans to Propose Stronger Financial-Fraud Rules (Update2)
By Rebecca Christie
bloomberg.com
March 25 (Bloomberg) -- The Obama administration plans to unveil new rules to protect consumers and investors against financial fraud, aiming to stamp out practices that helped spark the mortgage-market crisis.
The administration will also release this week proposed legislation requesting new powers for the Treasury and Federal Deposit Insurance Corp. to take over failing financial institutions and wind them down. Treasury Secretary Timothy Geithner said today that the plan for a so-called resolution authority over non-banks would include a mechanism for raising funds to cover any losses.
The U.S. also will coordinate internationally to press for stronger global standards for financial companies, Geithner said in a speech to the Council on Foreign Relations in New York.
New fraud rules “will help us deal in the future with threats like the practices in subprime lending that kicked off the current crisis,” Geithner said.
Banks and other financial institutions must have stricter oversight that reins in their ability to harm the overall financial system, Geithner said. He said regulators need new tools to prevent “cascading damage” when financial companies run into trouble, such as higher capital standards and restrictions on the amount of risk they can take on.
‘Extraordinary Actions’
To get through the crisis, the U.S. must continue “extraordinary actions” to prop up the financial system and also seek regulatory changes to prevent a recurrence, Geithner said.
Responding to audience questions after the speech, Geithner said the Treasury has enough money left in the $700 billion Troubled Asset Relief Program passed last October.
“We still have substantial resources left to make sure we can meet other contingencies and fund whatever capital requirements the system needs,” Geithner said.
He also didn’t rule out asking for more funding, saying, the administration will “work with Congress over time to make sure we can act with the scale and force necessary” to solve the crisis.
Geithner praised world economic leaders for taking measures “on a broader scale” than in previous downturns. “I think you’re seeing around the world a very strong commitment to action,” he said.
Special Rights
The Treasury chief said he was “open” to expanding special drawing rights at the International Monetary Fund, though later he said the dollar would “remain the world’s dominant reserve currency.”
Geithner is scheduled to lay out the administration’s regulatory strategy tomorrow at a House Financial Services Committee hearing in Washington.
“This framework will significantly raise the prudential requirements, once we get through the crisis, that our largest and most interconnected financial firms must meet,” Geithner said.
Yesterday, Geithner called for new authority to seize and wind down failing financial companies in the aftermath of the rescue of American International Group Inc., which has ballooned to $182.5 billion from an initial $85 billion in September. Obama said in a news conference yesterday that he expects the proposal to gain “strong support.”
In details released today, the Treasury and the FDIC would be the main agencies that handle the resolution of the systemically important financial companies that aren’t banks. The Federal Reserve and other regulators would be consulted.
The plan uses procedures similar to the way the FDIC handles bank failures, without tapping the Deposit Insurance Fund used to safeguard bank deposits.
Instead, the administration will seek new funding mechanisms. This could take the form of a “mandatory appropriation” to the FDIC or a special assessment on financial institutions, the Treasury said.
To contact the reporters on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net
Last Updated: March 25, 2009 12:02 EDT |
