Saturday, January 24, 2009

Geithner Wants Stronger Rules for Derivatives and Hedge Funds

Treasury Secretary-nominee Timothy Geithner on Friday pledged to strengthen regulation of over-the-counter derivatives and pursue registration of hedge funds to improve market transparency.

In written responses to questions from Sen. Carl Levin, a Michigan Democrat, Geithner said the current regulatory system for derivatives and complex structured financial products failed to adapt to new risks.

"We are going to need sweeping changes, in regulatory policy, the oversight structure and in our tools for crisis management," Geithner said in his responses.

Geithner faces a confirmation vote by the full Senate on Monday amid controversy over his underpayment of self-employment taxes. It is believed that while the tax issue is controversial, Geithner will easily be confirmed.

He said if confirmed, he would pursue a stronger and more comprehensive framework for regulating derivatives markets to bring greater transparency, accountability and safety to these markets, which have been blamed for deepening the current financial crisis and recession.

"There may be a number of ways to achieve this, but steps to be taken in the short-term include bringing standardized products within centralized clearing mechanisms and setting an effective statutory and regulatory framework for regulating all derivatives," Geithner said.

He added that he would also consider the consolidation of financial regulatory agencies -- a goal proposed by the previous Treasury secretary Henry Paulson.

Regarding hedge funds, Geithner said he believes better federal oversight was needed for hedge funds, whose destabilization could seriously disrupt markets and credit flows.

"I support the goal of having a registration regime for hedge funds because we need greater information and better disclosure in the marketplace. I believe that we should also establish an effective regulatory framework for derivatives dealers."

Geithner also endorsed continuation of mark-to-market accounting rules, saying they help protect investors and promote transparency.

Source: Reuters

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