Tim Geithner gave a speech today called ‘The State of Wall Street Reform’ — pretty self explanatory.
He started by saying that “we are making considerable progress in a short amount of time,” and then launched into a list of things we’ve done and things that we still need to do.
Here’s what we’ve done:
- Banks now face a tougher set of limits on risk – new rules on capital and liquidity force banks to hold more cash and fund themselves more conservatively. He also mentioned Volcker Rule and limits on the size of banks here.
- The derivatives markets are coming under a framework of transparency requirements, margin rules, and other safeguards.
- We have a new set of safeguards against risk outside the financial system — i.e. money market funds will face requirements to limit their vulnerability to runs (more of this to come this year) and markets like tri-party repo are more conservatively constructed.
- Addressing Too Big Too Fail — We now have tougher limits on leverage, measures to limit contagion, limits on size and concentration, and a new bankruptcy-type framework to manage failure if it happens.
- We have stronger protections for consumers and investors — there’s the Consumer Financial Protection Bureau for consumers, and as for investor’s there are new measures that allow shareholders give a large voice in compensation (for one).
Here’s what we need to do:
- Address the global level playing field challenge — make sure that every country in the world is on board so that the U.S. is not at a dissadvantage. This is especially important on capital, derivative, and leverage rules.
- Housing and finance reform — this year the government is focusing on winding down GSE’s (Fannie and Freddie) and this spring we’ll have more details on new reforms. Then there’s homeowners — Geithner mentioned new national refinancing standards and measures to convert foreclosed homes into rentals.
- Expand credit — people are still finding it hard to borrow. It’s getting easier to get credit but there are tough pockets, for example small business and mortgages. Banks participating in a small business lending fund have increased their funding by $3.5 billion, but there’s still work to be done.
Geithner did say one ominous thing of note: “It’s important to know that those who work to slow the pace to reform are only heightening uncertainty…” That sounds like a warning not just to banks, but also to politicians blocking reform.
And to close:
“The U.S. financial system is stronger and getting stronger…we have shut down or restructured the weakest parts of our system… finally we’ve been able to dramatically reduce the expected cost of the financial crises to levels unthinkable in 2009…the financial system is much less vulnerable than it was and is much more able to manage a growing economy.”