U.S. Treasury Secretary Timothy F. Geithner said he wants global minimum standards on derivatives trading and urged regulators to avoid a “race to the bottom” in which financial risk moves to the least-supervised economies.
“We need global minimum standards for margins on uncleared derivatives trades,” Geithner said today in remarks prepared for a speech in Atlanta. “Without international consensus, the broader cause of central clearing will be undermined. Risk in derivatives will become concentrated in those jurisdictions with the least oversight. This is a recipe for another crisis.”
The U.S. Commodity Futures Trading Commission and Securities and Exchange Commission are writing new regulations required by the Dodd-Frank Act, the financial overhaul enacted last July, after largely unregulated derivatives helped fuel the 2008 credit crisis. Dodd-Frank seeks to reduce risk and boost transparency in the $601 trillion global swaps market by having most swaps guaranteed by central clearinghouses and traded on exchanges or other venues.
“We don’t want to see another race to the bottom around the world,” Geithner said in his remarks at the International Monetary Conference. “As we act to contain risk in the U.S., we want to minimize the chances that it simply moves to other markets around the world.”
The United Kingdom’s “experiment in a strategy of ‘light touch’ regulation to attract business to London away from New York and Frankfurt ended tragically,” he said. “That should be a cautionary note for other countries deciding whether to try to take advantage of the rise in standards in the United States.”
Geithner said the U.S. “will do what we need to do to make the United States financial system stronger. We will do so carefully. And as we do it, we will bring the world with us.”
The U.S. Chamber of Commerce, the National Association of Corporate Treasurers and the Business Roundtable are among lobbying groups pressing regulators to ensure that corporate end-users of derivatives don’t need to set aside margin in their swap transactions to reduce risk. The companies say such a requirement would force them to set aside millions of dollars that could be invested elsewhere.
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