U.S. Treasury Secretary Timothy Geithner has praised a recent agreement on global capital standards, calling it a major milestone in the process of global financial reform. He says it reduces the risk of future financial crises and lessens the impact of financial failures.
Geithner testified to the House Financial Services panel Wednesday that the agreement between the United States and its major foreign counterparts substantially increases the levels of capital that major banks will be required to hold.
He says in addition to the minimum, banks will need to have a buffer of capital as well. "These two separate requirements have been set to ensure that the major banks hold enough capital that they will be able to withstand losses similar to what they faced in the depths of this recession and still have the ability to operate without turning to the government for extraordinary help," he said.
He says the new measures will help protect taxpayers, by limiting the risks taken by financial institutions. He says major U.S. banks should be able to meet the requirements by future earnings over time.
The top Republican on the panel, Congressman Spencer Bachus of Alabama, questioned if requiring banks to have more capital would have an adverse impact on the struggling U.S. economy. "Higher capital standards mean less credit, less credit means fewer jobs and less economic growth," he said.
The hearing comes just after two key members of the president's economic team announced their resignations - Herb Allison who has been overseeing the government's $700 billion financial bailout program and Larry Summers, the president's top economic adviser.
Republicans were quick to point out their displeasure with the Obama administration's economic policies.
Texas Republican Representative Jeb Hensarling called for the administration to halt spending, saying it is driving the country, in his words, toward national bankruptcy. He said fundamentally the economy is not suffering from a lack of capital, but rather a lack of confidence. "Between the health care bill, the tax increases, the financial regulations, the cap and trade and mind-boggling debt, job creators are mired in uncertainty and feel nothing but hostility from this president and this Congress," he said.
Earlier in the day, Geithner told a meeting of financial regulators that the economy is on the road to recovery. But he cautioned it still will take time and he called on lawmakers to back President Barack Obama's proposal to extend tax cuts for middle class Americans.