Nominee Calls for More Financial Regulations
Treasury Secretary nominee Timothy Geithner testified before the Senate Finance Committee on January 21, 2009. In prepared remarks Geithner hints at a desire to increase regulation of the financial markets:
I believe that markets are central to innovation and to growth, but that markets alone cannot solve all problems. Well-designed financial regulations with strong enforcement are absolutely critical to protecting the integrity of our economy.
During the testimony Geithner faced pointed questions regarding tax policies and the failure of the current regulatory regime to effectively police the financial markets. Many times he stated that increased regulation may be necessary to protect all participants within the financial markets. Specifically with regard to hedge funds, in his answer to a question posed by Senator Grassley, Geithner stated “I believe that we should consider requiring registration of hedge funds.”
I have posted below some of the more interesting question and answer excerpts from the testimony. The full transcript can be found here: Geithner Senate Testimony. His prepared remarks can be found here: Geithner Prepared Remarks. Other articles regarding hedge fund and other financial regulation include:
- Grassley Renews Effors to Register Hedge Funds
- Hedge Funds, Congress and Madoff
- Future Hedge Fund Regulation
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Excerpts from testimony (questions in italics):
Chairman Baucus
What can the IRS do to stem the tide of scams and schemes – offshore arrangements like UBS, and abuses like the Madoff Ponzi scheme – that result in folks hiding their income from Uncle Sam?
I share the President’s commitment to closing down tax loopholes. I look forward, if confirmed, to working with the committee to examine this issue.
If confirmed, I will be a strong advocate for the Internal Revenue Service and its efforts to secure sufficient funding to carry out its mission successfully. Tax enforcement is akey priority for the IRS and I look forward to working with IRS Commissioner DougShulman to ensure that the compliance and enforcement mission of the IRS receives thenecessary support and funding.
Senator Grassley
In your testimony today, you stated that you supported more transparency andoversight for the market. I introduced a bill to require hedge funds to be registeredso we at least know how many and who they are. You’ve said we need more oversight.
Do you support requiring registration of hedge funds?
What suggestions do you have to bring improve transparency of the operations and activities of hedge funds?
The financial crisis has highlighted the urgent need to overhaul the oversight of our financial system. With an objective of bringing greater transparency and oversight, I believe that we should consider requiring registration of hedge funds. If confirmed, I look forward to working with Congress on this.
Senator Crapo
What principles are you going to push for as we begin the dialogue of rethinking our current regulatory structure, and would a merger or rationalization of the roles of the SEC and CFTC be a valuable reform?
My first priority in thinking about our regulatory structure will be improving the capacity of our financial system to withstand shocks. There is no doubt in my mind that our financial system, as we have witnessed during this crisis, failed to meet its most basic obligations. The system was too unstable, too fragile, and too weak to withstand high levels of stress. As such, people who did everything right and played by the rules and were careful were hurt by the actions of those who took too much risk and too little responsibility. That, to me, is the sign of a system that is unfair and unjust and very much in need of reform.
If I am confirmed, I will move quickly and work with Congress to build a stronger, more resilient system with greater protections – as a very high priority – for consumers and investors. Getting these basic objectives right is more critical than worrying about the exact structure of our regulatory agencies. I’d like to work with you and learn more about your views on the best options for redesigned regulatory structures. I know we can preserve the unique strengths of our financial markets in providing individuals and entrepreneurs access to capital and credit while also making our system more safe, more sound, and more just.
Senator Ensign
The Treasury has a leading role in the G-20. Creating a new international financial architecture has been a serious topic of discussion in that group. Some countries apparently want a significant increase in regulation. I worry about the unintended consequences of this exercise and how additional regulations could compromise economic recovery. What are your plans on proposing new regulation on financial service firms, and do you commit that this process will be openly reviewed with Congress before agreeing to proposals from other countries in venues like the G-20?
Financial regulation remains first and foremost a national issue. As I said during my testimony, we will seek to improve the regulatory structure in a way that provides the safeguards we need without creating undue burden on financial market participants; we look forward to working with Congress on these issues. Nevertheless, we must also remember that this crisis has taught us the importance of international linkages in financial markets. Therefore, we look forward to taking into consideration the best thinking on how to coordinate our efforts with our partners in the G-20, the Financial Stability Forum, and the IMF, among others.
In a June 2008 speech, you stated that, “the Federal Reserve has broad responsibility for financial stability not matched by direct authority” and that we need a more “unified framework that provides a stronger form of consolidated supervision.” This has been interpreted as a call for strengthening the Federal Reserve’s power and authority. Do you still believe that? If so, what specific new powers for the Fed would you propose?
I believe stronger regulation is necessary to make financial markets work well. Our financial system architecture is unsound and outdated. We need a fundamental redesign. Among other things, this includes better prevention and detection methods, better enforcement authority, resolution regime for systemically important nonbanks and better checks on excessive risk. I look forward to working with Congress as we move ahead to building a more effective financial regulatory framework.
Senator Hatch
Do you think that fundamental and wholesale reform of the tax code is politically possible during this new administration? Or, do you believe that it might make more sense from a practicality standpoint for the Administration and Congress to pursue a series of incremental reforms that simplify the code and improve the incentives for both households and firms?
Determining the best strategy to reform the tax code is something that can only be accomplished with close consultation and work with you and other members of Congress. I share the President’s support for simplifying the tax code, restoring fairness, and encouraging pro-growth, pro-job tax policies. I also share his desire to provide middleclass tax relief and find ways to help American companies create jobs and be globally competitive. At the same time, there is a lot of work that needs to be done to eliminate unnecessary tax shelters and loopholes. We also must find ways to increase compliance and close the tax gap. If confirmed, I will work with you to improve our tax system. I believe our most urgent tax priorities are to find ways to create jobs, encourage business investment through the adoption of the economic recovery plan, and provide for longterm economic growth.
Senator Stabenow
Our country is currently facing the worst financial crisis in decades. This is due in part to a lack of oversight and enforcement by our regulators. What do you think needs to happen in the regulatory overhaul of the financial system to ensure a crisis like the one we are currently experiencing can never happen again? What will be your priorities and recommendations for President-elect Obama to address this issue?
My first priority in thinking about our regulatory structure will be improving the capacity of our financial system to withstand shocks. There is no doubt in my mind that our financial system, as we have witnessed during this crisis, failed to meet its most basic obligations. The system was too unstable, too fragile, and too weak to withstand high levels of stress. As such, people who did everything right and played by the rules and were careful were hurt by the actions of those who took too much risk and too little responsibility. That, to me, is the sign of a system that is unfair and unjust and very much in need of reform.
If I am confirmed, I will move quickly in consultation with Congress to build a stronger, more resilient system with greater protections – as a very high priority – for consumers and investors. Getting these basic objectives right is more critical than worrying about the exact structure of our regulatory agencies. I’d like to work with you and learn more about your views on the best options for redesigned regulatory structures. I know we can preserve the unique strengths of our financial markets in providing individuals and entrepreneurs access to capital and credit while also making our system more safe, more sound, and more just.