April 18 2010US Treasury chief hardens stance on derivatives
Tim Geithner, US Treasury secretary, stiffened his call for derivatives reform on Sunday as lawmakers and officials used allegations that Goldman Sachs committed fraud in marketing complicated financial instruments to push for more transparency.
With a financial regulation bill due to be considered by the Senate within days, Mr Geithner and others expressed confidence that Republicans would vote in favour of the legislation, whose final derivatives language may be tougher after the Goldman charges from the Securities and Exchange Commission.
Bill Clinton, the former US president, said Friday morning, I thought the odds were about 60 per cent or 70 per cent this bill would pass.” But then “the odds went up to about 90 per cent, because when the SEC brought that fraud suit against Goldman, I think that was the clincher”.
In an interview with ABC’s This Week, Mr Clinton said he regretted not taking a tougher line on derivatives when in office and partly blamed “wrong” advice from Robert Rubin and Larry Summers, his senior Treasury officials. Mr Summers is now head of President Barack Obama’s National Economic Council.
“Now, I think if I had tried to regulate them – because the Republicans were the majority in the Congress – they would have stopped it. But I wish – I should have been caught trying,” he said.
In his own appearance on a Sunday TV talkshow, Mr Geithner refused to comment on the Goldman charges, which the bank denies, but said there had been “catastrophic failures in judgment” on Wall Street. He added that private conversations with Republicans gave him confidence there would be some votes from the party in favour of regulatory reform.
Separately, in a letter to Jean-Claude-Trichet, president of the European Central Bank, Mr Geithner called for co-operation between the US and Europe in deciding which contracts should be forced through central clearing houses and on to electronic exchanges.
The letter was sent on Friday and describes a regulatory reform tougher than some Democratic and Republican proposals: “All standard derivative contracts must be traded transparently” on exchanges or other platforms, Mr Geithner wrote, “lowering costs for users of derivatives, such as industrial or agriculture companies”.
Some industrial companies have argued fervently that they should be given broad exemptions from the new set-up, complaining that the move to central clearing – with the accompanying margin requirements – will raise the cost of non-speculative hedging.
Republicans led by Judd Gregg, a member of the Senate banking committee, have argued that exchange trading is not necessary for many contracts. But Mr Geithner looks set on pushing for minimal exemptions and maximum use of exchanges. “It is critical that any exceptions not be exploited,” he wrote.
A derivatives bill published on Friday by Blanche Lincoln, chairman of the Senate agriculture committee, was tougher than expected in forcing more of the instruments through clearing houses and on to electronic exchanges.
The proposals, which would hit the profit margins of Wall Street dealers, offer “probably a better convergence” with European Commission plans to overhaul the market, according to Jiro Okochi, chief executive of Reval, a derivatives risk management company.
“My concern is that dealers will now have additional costs by being forced to exchange-trade and will be forced to post margin and will pass on costs to industrial end-users,” said Mr Okochi.
Ms Lincoln’s text could be offered as an amendment to the main regulatory reform bill drawn up by Chris Dodd, the Senate banking committee chairman.
Even though the SEC has said the charges’ timing was unrelated to the reform bill, it has shaken the banks as they enter the final stretch of lobbying.
Tim Geithner, US Treasury secretary, stiffened his call for derivatives reform on Sunday as lawmakers and officials used allegations that Goldman Sachs committed fraud in marketing complicated financial instruments to push for more transparency.
With a financial regulation bill due to be considered by the Senate within days, Mr Geithner and others expressed confidence that Republicans would vote in favour of the legislation, whose final derivatives language may be tougher after the Goldman charges from the Securities and Exchange Commission.
Bill Clinton, the former US president, said Friday morning, I thought the odds were about 60 per cent or 70 per cent this bill would pass.” But then “the odds went up to about 90 per cent, because when the SEC brought that fraud suit against Goldman, I think that was the clincher”.
In an interview with ABC’s This Week, Mr Clinton said he regretted not taking a tougher line on derivatives when in office and partly blamed “wrong” advice from Robert Rubin and Larry Summers, his senior Treasury officials. Mr Summers is now head of President Barack Obama’s National Economic Council.
“Now, I think if I had tried to regulate them – because the Republicans were the majority in the Congress – they would have stopped it. But I wish – I should have been caught trying,” he said.
In his own appearance on a Sunday TV talkshow, Mr Geithner refused to comment on the Goldman charges, which the bank denies, but said there had been “catastrophic failures in judgment” on Wall Street. He added that private conversations with Republicans gave him confidence there would be some votes from the party in favour of regulatory reform.
Separately, in a letter to Jean-Claude-Trichet, president of the European Central Bank, Mr Geithner called for co-operation between the US and Europe in deciding which contracts should be forced through central clearing houses and on to electronic exchanges.
The letter was sent on Friday and describes a regulatory reform tougher than some Democratic and Republican proposals: “All standard derivative contracts must be traded transparently” on exchanges or other platforms, Mr Geithner wrote, “lowering costs for users of derivatives, such as industrial or agriculture companies”.
Some industrial companies have argued fervently that they should be given broad exemptions from the new set-up, complaining that the move to central clearing – with the accompanying margin requirements – will raise the cost of non-speculative hedging.
Republicans led by Judd Gregg, a member of the Senate banking committee, have argued that exchange trading is not necessary for many contracts. But Mr Geithner looks set on pushing for minimal exemptions and maximum use of exchanges. “It is critical that any exceptions not be exploited,” he wrote.
A derivatives bill published on Friday by Blanche Lincoln, chairman of the Senate agriculture committee, was tougher than expected in forcing more of the instruments through clearing houses and on to electronic exchanges.
The proposals, which would hit the profit margins of Wall Street dealers, offer “probably a better convergence” with European Commission plans to overhaul the market, according to Jiro Okochi, chief executive of Reval, a derivatives risk management company.
“My concern is that dealers will now have additional costs by being forced to exchange-trade and will be forced to post margin and will pass on costs to industrial end-users,” said Mr Okochi.
Ms Lincoln’s text could be offered as an amendment to the main regulatory reform bill drawn up by Chris Dodd, the Senate banking committee chairman.
Even though the SEC has said the charges’ timing was unrelated to the reform bill, it has shaken the banks as they enter the final stretch of lobbying.
AP
