Geithner's formula for post-crisis optimism

• Source: caijing.com.cn
• [13:52 October 14 2009]
• Comments

Financial Supervision

The global framework for financial supervision urgently needs an overhaul. But as one of the first countries to propose systematic reform, the United States still faces battles. For example, any plan advanced by Geithner for President Barack Obama's administration still has to pass Congress.

Geithner said although reform may lead to some unpredictable results and restrain innovation, "these are not the major risks that we are facing." A bigger risk, he said, is that there may not be enough political will to make reform happen.

Reform also needs international coordination. To maintain the financial system's normal operations and effective capital allocation requires stability, Geithner said. And that will be hard to achieve through the market alone.

"It needs a series of standards," he said. "And it is the government's task to define and implement."

Geithner said financial reform needs clear direction as well. What's the limit? What stimulus mechanism should be used? A special framework may not be needed; Geithner said the current framework for cooperation between the Financial Stability Board and IMF is adequate. So a new, independent executive institution may not be effective. Rather, changing the current situation depends on how each country shapes policy and cooperates.

"Of course, I'm worried about a lack of reform momentum after the economic recovery," Geithner said. Yet he remains "generally optimistic."

"We're trying the basic devices – making deadlines that are made public, set to make people accountable," he said.

"I've seen lots of failed attempts at cooperation," the treasury chief said. "This feels much more promising to me. But in the end, you'll be the judge of what we do."