Treasury Secretary Timothy Geithner said Monday the administration will not accept a financial overhaul bill that does not provide strong consumer protection and restraints on risk-taking by large banks.
Geithner urged lawmakers to listen to the families and businesses that were harmed by the financial crisis and not the financial institutions that brought on the crisis, the most severe to hit the country since the 1930s.
"The test we face is whether we can enact real reforms that provide strong protection for consumers, strong constraints on risk-taking by large institutions and strong tools to protect the economy and taxpayers from future crises," Geithner said in remarks to the American Enterprise Institute, a conservative think tank.
"We will not accept a bill that does not meet that test," Geithner said. His comments came as the Senate Banking Committee was passing on a party-line 13-10 vote a measure written by Committee Chairman Christopher Dodd to overhaul the financial system.
In his remarks, Geithner said that the country is facing a "defining moment" in the battle to enact financial reform. The administration put forward a set of recommendations nine months ago and the House passed a bill in December.
But the effort remains in doubt in the Senate. Dodd was unable to attract any Republican support for his bill in the committee. The measure now goes to the full Senate where its prospects remain in doubt.
In response to questions, Geithner said he was "looking forward" to reforming mortgage giants Fannie Mae and Freddie Mac.
The two mortgage-finance companies were seized by federal regulators in September 2008. They are vital players in the mortgage industry, purchasing home loans from lenders and selling them to investors. They own or guarantee about half of all residential mortgages. Had they gone broke, millions of people would have been unable to get home loans.
Geithner said he would testify before Congress on Tuesday on efforts to overhaul Fannie and Freddie but he said the administration is not yet ready to unveil the details of its recommendations for the two agencies. He said that the administration feels it is important to first address broader financial overhaul and then turn to the mortgage giants once the housing industry is on more stable footing.
He said "we are going to be in a better place to get reform" once the still-fragile housing market recovers.
Geithner said that America's leadership on global financial matters is at stake in the congressional debate over the broader financial overhaul and he urged congressional action.
"If we fail to act, America will lose this opportunity to set the global agenda, to define new high standards for all financial companies and to lead the debate in shaping a level playing field on terms that play to our strengths," Geithner said.
"If we fail to act, American firms that operate globally will face a more balkanized system, with higher costs of doing business and riddled with pockets of lower standards designed to attract the kinds of risky behavior we are seeking to end," he said.
Geithner urged lawmakers to "be careful whose voice you listen to" in deciding which provisions to support. He said lawmakers need to "listen less to those whose judgments brought us this crisis" and who are complaining about having to live with increased regulations and increased fees to pay for the costs of the crisis.
He said, instead, lawmakers should be listening to the families and businesses "still suffering from this crisis" because they can't get a loan or because they lost their jobs in the deep recession that was triggered by the financial meltdown.
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