Treasury Secretary Timothy Geithner on Tuesday told a packed room of Wall Street dealers and bankers they could not look America in the eye and argue that financial regulation is fine as it is.
Geithner said the financial system was tragically fragile after experiencing the worst crisis since the 1930s, and the government must respond by adding new regulation as well as improving on current ones.
It's a war of necessity, not a war of choice, he said at the Securities Industry and Financial Markets Association annual meeting in New York. And it's a just war.
Geithner made the comments at the SIFMA event, where executives including JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon warned that overregulation could taint the financial sector's ability to aid economic growth. He said that Americans and Congress were behind the U.S.'s efforts, which will strike a balance between innovation and stability.
He also said that the financial industry is showing a strong interest in reform, overall.
Of course, you will see people fight to preserve what will be in their short-term interests but it's important that those efforts do not derail reform, he said.
Among reforms underway is a strategy that would make it easier for the government to seize control of institutions deemed too big to fail if they present risks to the financial system and the economy. The government would be able to oust managers, wipe out shareholders and restructure a firm's debt, an Obama administration official said on Monday.
JPMorgan's Dimon earlier on Tuesday reiterated his support for a resolution mechanism and systemic risk regulator that could deal with companies that become too big to fail.
Consumer protection and financial stability are the two biggest areas targeted for major reforms that will go toward winning back confidence of investors and the American public, Geithner said. That will add to the economic stabilization and a broadening of the growth recovery already underway.
We saw just a colossal loss of confidence ... and we need to fix that, he said.
SECOND STIMULUS PLAN?
With the economy in the early stages of recovery it is important that the government does not make the mistake of doing too little in terms of stimulus, he said. There are strong arguments for extending some government programs geared at lifting the U.S. economy out of recession, he said.
But he added that it was too early to speculate about a second stimulus package because about half of the current economic support program has yet to take effect.
The Congress is now looking at a range of choices of whether we should extend unemployment benefits and other targeted economic programs, he said.
There's going to be a good case for extending many of those, he said, in response to a question about chances for additional economic stimulus programs.
Geithner said the financial sector and credit markets have improved dramatically but the overall picture is still mixed. While large banks have been able to access capital needed to shore up their positions, small and regional banks continue to face challenges, he said.
Asked about the U.S. dollar, which has weakened against other major currencies this year, Geithner said it would remain the world's main reserve currency for a long time as the nation takes the right measures to support the economy.
I think the dollar will remain the principal reserve currency for a long period of time, he said.
(Reporting by Walden Siew and Al Yoon; Editing by Andrew Hay)