Geithner Signals Fed
Federal Reserve Bank of New York President Timothy Geithner signaled the central bank's emergency lending programs are still needed, citing “exceptional'' tensions in financial markets.
“These facilities, all of them, are still providing a very important role in confidence as a backstop source of liquidity,'' Geithner said during a House Financial Services Committee hearing today. There's still an “exceptional set of tensions,'' he said.
Geithner indicated he favors keeping the programs, which include direct loans to primary U.S. government bond dealers, in place even as their use fades. Fed Chairman Ben S. Bernanke said earlier this month the central bank may extend the facilities into next year.
“I don't think you can really judge the value today to the firms themselves, or the people that fund them, from looking at use day-by-day,'' Geithner said at the hearing in Washington.
The Fed's Primary Dealer Credit Facility, engineered by Geithner in March to provide direct loans to dealers in the wake of the Bear Stearns Cos. collapse, has seen almost no lending for three weeks. A separate program that lends Treasuries typically draws fewer bids than the totals offered by the central bank.
The PDCF reached a record $38.1 billion in the week ending April 2. Officials said when they introduced the tool in March that it would be in place for “at least'' six months.''
`More Conservative'
Fed and Securities and Exchange Commission officials are trying to ensure that “major investment banks move to adopt a more conservative mix of leverage and funding than they had on the eve of the Bear Stearns'' crisis, Geithner also said, responding to questions from Representative Edward Royce, a California Republican fastcash.
“They have made substantial progress in moving towards an appropriately more conservative mix of leverage and funding,'' Geithner said.
Bernanke said July 8 the Fed may extend the facilities into next year “should the current unusual and exigent circumstances continue to prevail in dealer-funding markets.'' Bernanke has yet to say that such conditions have subsided.
Geithner said in his prepared testimony that the central bank should play a prominent part in regulating financial institutions and ensuring market stability after the biggest credit crisis in decades.
Fed's Role
The Fed “should play an important role in the consolidated supervision of those institutions that have access to central- bank liquidity and play a critical role in market functioning,'' he said.
During the same hearing, U.S. Securities and Exchange Commission Chairman Christopher Cox asked lawmakers to bolster his agency's authority to police investment banks. Former securities regulators say a more powerful Fed may undermine the SEC's authority and impede its efforts to protect investors.
Massachusetts Democrat Barney Frank, the House panel's chairman, and the U.S. Treasury advocate giving the Fed more supervisory authority over such companies to create safeguards against risk. Congress is likely to consider such legislation in 2009.