Yesterday, U.S. Treasury Secretary Timothy Geithner testified at a House Financial Services Committee's hearing entitled “the State of the International Financial System, Including International Regulatory Issues Relevant to the Implementation of the Dodd-Frank Act.”
In his opening remarks, Secretary Geithner expressed his support for the new Basel III rules that were agreed last week by the Basel Committee on Banking Supervision. The Basel III rules set forth new capital requirements that will require banks to maintain more capital over time in order to absorb potential losses. Secretary Geithner noted that due to the stress tests that were performed in the United States last year, U.S. financial institutions are in a good position to meet the new global capital requirements. Some critics and lawmakers have expressed the view that the Basel III rules may limit banks' ability to make loans. Secretary Geithner noted, however, that the new capital requirements "will significantly lower the probability and severity of future financial crises and it will help protect taxpayers by limited excessive risk-taking by financial institutions." He also stated that “[t]he new standards are designed to ensure that major banks hold enough capital to withstand losses as large as what we saw in the depths of this recession and still have the ability to operate without turning to the taxpayer for extraordinary help."
Committee members questioned whether the implementation of the Basel III rules would put U.S. financial institutions at a competitive disadvantage in comparison to non-U.S. financial institutions. Representative Royce (R-CA) noted that he feared that European countries would not take the necessary steps to implement the new measures or would not implement them fully or consistently. Secretary Geithner stated that the Administration plans to monitor global implementation of the new Basel III rules and would take engage "foreign counterparts to look for ways to ensure that these agreements are implemented in a transparent and consistent way."
The G-20 leaders will review the proposed new capital standards at the November summit in South Korea. The United States hopes that the G-20 leaders will endorse the new capital standards so that governments can begin to implement the measures. Secretary Geithner noted that, pursuant to the broad authorities promulgated under the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act, the United States has the authority to impose tougher capital standards than those called for under the new Basel III rules.
Secretary Geithner also expressed his support for the early appointment of a permanent director to the Consumer Financial Protection Bureau. Last week, President Obama selected Harvard law professor Elizabeth Warren to serve as Assistant to the President and as Special Adviser to Secretary Geithener in connection with the creation of the Consumer Financial Protection Bureau. As special advisor, however, Professor Warren will not be subject to Senate confirmation.