In an address at the Treasury in which he set out an agenda for reforms, Geithner said globalized financial markets mean that dangers to the US economy can arise from anywhere and thus make a more level playing field vital. "This is particularly important in the reforms that toughen rules on capital, margin, liquidity and leverage, as well as in the global derivatives market," he said. "In these areas we are working to discourage other nations from applying softer rules to their institutions in order to try to attract financial activity away from the US market and US institutions," Geithner added. He did not name any specific countries, but in virtually any region of the globe, there are financial centers that aspire to challenge New York's prowess. Some Wall Streeters complain that stiffened regulation since the 2007-2009 financial crisis has created an opening for others to gain an edge on US firms.
With the presidential election approaching in November, there is still anger among voters at big US banks that were blamed for helping trigger the crisis. Geithner said considerable progress has been made in creating a stronger and safer financial system, and he warned against letting up in the effort. "Much of the excess risk-taking and careless and damaging financial practices that caused so much damage have been forced out of the financial system," Geithner said. "These gains will erode over time if we are not able to put our full reforms in place," he added.
Not only are banks facing constraints on their use of leverage, but so will other non-banking financial firms that are seen as posing a risk to the stability of the financial system. Geithner said the Financial Stability Oversight Council, created as part of the Dodd-Frank regulatory overhaul legislation, will designate the first of the non-bank firms this year that could be a stability risk, making them subject to stiffer supervision.
He also said the Treasury expects to spell out in more detail this spring its approach to reforming US mortgage markets, including a path for winding down government-sponsored enterprises Fannie Mae and Freddie Mac, the largest providers of mortgage funding. The two were placed in government conservatorship at the height of the financial crisis in 2008 and have since soaked up about $169 billion in taxpayer support. There is widespread feeling that they should be shut down, but considerable disagreement among lawmakers over what role the government should play in mortgage markets in future. Geithner said the Obama administration has "shut down or restructured" the weakest parts of the financial system seen as most responsible for fostering the financial crisis. "Banks and other financial institutions with more than $5 trillion in assets at the end of 2007 have been shut down, acquired or restructured," he said, making the financial system less vulnerable and putting it in a position to help finance economic growth rather than act as a drag on it.