Congress must move quickly to create a "safer, more stable financial system," U.S. Treasury Secretary Timothy Geithner said Thursday, as lawmakers on both sides of Capitol Hill pressed forward with legislative efforts.
"To ensure the vitality, the strength and the stability of our economy going forward, we must bring our system of financial regulation into the 21st century," Geithner told a joint congressional committee.
Geithner, at times pushed to anger by calls from Republicans that he step down, described it as a "tragic failure of this country" that regulators did not have the basic tools to act quickly to respond to panic in the financial markets. Officials were responding with "duct tape and string" as major financial giants such as Lehman Bros. and American International Group Inc. (AIG) teetered on the brink.
"Nobody in my job should ever be in the position again of having to come into a crisis like this without those basic authorities," he said.
Geithner's urging came as two key panels continued their efforts to move sweeping revamps of the way financial firms are regulated in the U.S. The House Financial Services Committee was seeking to complete work on a proposal to regulate and wind-down the largest financial services firms, while the Senate Banking Committee began consideration of Sen. Christopher Dodd's (D., Conn.) more than 1,100-page legislative package.
But though congressional Democrats and the Obama administration have been pushing ahead with regulatory overhaul proposals, key differences on details of the new regulatory structure remain to be settled. Geithner stressed Thursday that a single regulator--the Federal Reserve--should have oversight of the "largest, most interconnected firms," a position that has fallen out of favor with lawmakers skeptical of the central bank. Both the House and Senate have been moving towards support of a council of regulators.
Geithner said there needs to be "single-point accountability" for overseeing systemically important firms.
"This is no place for regulation by council or by committee," he warned.
He also said policymakers need to effectively eliminate the concept of "too big to fail."
"No financial system can operate efficiently if financial institutions and investors assume that the government will protect them from the consequences of failure," Geithner said.
Sen. Sam Brownback (R., Kan.) said he supports an idea that is increasingly finding converts on Capitol Hill: allowing the government to preemptively break up large firms.
Geithner did not embrace proactively splitting up firms, and said he would not favor a return to laws that would prevent banks from mixing investment banking and retail banking activities.
"The critical thing is, you need to make sure the system's strong enough that you can let these firms fail and you don't have the taxpayer exposed to their losses," Geithner said.
-By Michael R. Crittenden, Dow Jones Newswires; 202 862 9273; michael.crittenden@dowjones.com