Tim Geithner’s Letter Shows Opposition to Fixed Capital Requirements for Banks

Posted on April 12, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

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In Financial Reform Bill

By Marian Wang, ProPublica – April 2, 2010 2:10 pm EDT

Remember how earlier this week, in a post about financial reform and liquidity requirements [1], we noted how vague [2] Treasury Secretary Tim Geithner was being with The New York Times about setting hard and fast rules about how much cash should be required to hold?

Here’s what we excerpted from the Times on Tuesday: Mr. Geithner insists that if there is one change that needs to be made to the banking system to protect it against another high-stakes bank run like the one that claimed the life of Lehman Brothers, increasing capital requirements is it.

Bank

Pinning Down Geithner

But try pinning down Mr. Geithner, or anyone else in the Beltway, on how much capital banks should be required to keep, or even how the word “capital” should be defined, and certainties disappear.

Turns out he had a lot more to say on the subject than what he told the Times. Mike Konczal [3], blogging for Ezra Klein, unearthed a letter Geithner sent to a lawmaker in January, explaining his hesitancy—really, his opposition—to setting fixed capital requirements in current financial reform proposals. From the letter [4]:

Although the Administration strongly supports imposing a simple, non-risk-based leverage constraint on banks, bank holding companies, and other major financial firms, we do not believe that codifying a specific numerical leverage requirement in statute would be appropriate.

Assessment

So when Geithner said, “We have not made a judgment yet on the number,” what he really was thinking—if this letter is any indication—is that as far as financial reform legislation itself goes, he doesn’t want a number, period. And when it comes to actually imposing tighter capital requirements on financial institutions, he wants the Treasury, the Fed or some combination of regulators to have a free hand to pick and change the number. In other words, pretty close to the way things are now.

Conclusion

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3 Responses

  1. Sam, on April 12, 2010 at 4:05 PM said:

    The NYTs

    According to the New York Times, the government’s bailout of the financial system is expected to cost $89 billion, much lower than earlier projections, citing Treasury Department officials. The figure, however, does not include losses at Fannie Mae and Freddie Mac, which are projected to be $370 billion through 2020.

    IOW: Uncle Sam bailed itself out much more than it did the private sector.

    Samantha

    Like

  2. Greta, on April 12, 2010 at 7:35 PM said:

    Sam,

    The general sentiment should be that we need to get the Fed off of its addiction to cheap money and back to doing what its real job is, defending the value of the USD greenback.

    Greta

    Like

  3. Blocke, on October 30, 2014 at 5:38 PM said:

    In Private Papers – A More Candid Tim Geithner Speaks Out

    The former Treasury secretary and architect of the Obama administration’s financial rescue sounds more like some of his detractors in papers that were never meant to be public.

    http://www.propublica.org/article/in-private-papers-a-more-candid-tim-geithner-speaks-out?utm_source=et&utm_medium=email&utm_campaign=dailynewsletter

    Blocke

    Like

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