By James Politi in Washington and Gillian Tett in London
Published: June 8 2008 23:32 | Last updated: June 8 2008 23:32
Banks and investment banks whose health is crucial to the global financial system should operate under a unified regulatory framework with “appropriate requirements for capital and liquidity”, according to Timothy Geithner, president of the Federal Reserve Bank of New York.
Writing in Monday’s Financial Times, Mr Geithner, a key US policymaker throughout the credit crisis and one of the main architects of the rescue of Bear Stearns, says that the US Federal Reserve should play a “central role” in the new regulatory framework, working closely with supervisors in the US and round the world.
“At present the Fed has broad responsibility for financial stability not matched by direct authority and the consequences of the actions we have taken in this crisis make it more important that we close that gap,” Mr Geithner says, in an excerpt of a speech to be delivered today at the Economic Club of New York.
The credit crisis has heightened pressure on US policymakers to consider sweeping changes to a regulatory system for financial institutions which has commercial banks such as JPMorgan Chase and Citigroup regulated by the Fed and investment banks such as Goldman Sachs and Lehman Brothers more loosely regulated by the Securities and Exchange Commission.
Mr Geithner called the system “a confusing mix of diffused accountability, regulatory competition and a complex web of rules that create perverse incentives and leave huge opportunities for arbitrage and evasion”.
However, legislation to overhaul US financial regulation is unlikely to start advancing through Congress until next year when the new administration takes office.
In his speech, Mr Geithner will also say the Fed is examining whether to make “permanent” some of the new liquidity facilities put in place during the credit crisis, and called for central banks to establish a “standing network of currency swaps, collateral policies and account arrangements” to bolster liquidity during a future crisis.
Meanwhile, Malcolm Knight, the general manager of the Bank of International Settlements, the Basel-based central banking group, told the FT that the financial system now faces a growing risk of exchange-rate volatility as investors and central banks grapple with the impact of rising commodity prices and other inflationary pressures.
“It is not clear if the rest of the world is going to continue to fund the US current account deficit at current levels of exchange rates,” he said. “The pattern of the exchange rates is subject to considerable uncertainty now.”
The comments are likely to be closely watched by investors and policymakers, since they come at a time of renewed market focus on the outlook for the dollar relative to the euro and other currencies. Last week, Ben Bernanke, Fed chairman, broke with the US central bank’s traditional silence on currency matters to make clear that it does not want any further dollar weakness.
While the dollar rallied on Mr Bernanke’s remarks, it retreated later in the week after European Central bank comments suggested an interest rate rise and as the price of crude oil soared, heightening inflation fears.
“There is a perception that after a long period of quiescent inflation, things are changing,” Mr Knight said. “This is quite visible in terms of commodity prices in energy markets but also in terms of what is happening with other commodities too.”
I have a much better idea - abolish central banking in its entirety.
-Jon
To darkness I condemn you...
Unfortunately the world seems more on the road to serfdom than the road to freedom. At least it's where our gouvernments want to lead us.
Time will tell
This clearly is a call for a global central bank. Would be disastrous if they actually managed to establish a global central bank.
Mark B.: This clearly is a call for a global central bank. Would be disastrous if they actually managed to establish a global central bank.
I agree. Maybe another decade of pseudo-growth, followed by the most disasterous depression the world has ever seen, leaving the survivors digging in the woods for roots and berries.
Market anarchist, Linux geek, aspiring Perl hacker, and student of the neo-Aristotelians, the classical individualist anarchists, and the Austrian school.
Might be better than a national central bank, at least this way countries can't print their ways through wars or debts.
"The plans differ; the planners are all alike"
-Bastiat
ChaseCola: Mark B.: This clearly is a call for a global central bank. Would be disastrous if they actually managed to establish a global central bank. Might be better than a national central bank, at least this way countries can't print their ways through wars or debts.
While we're at it, let's all hope that a global central bank paves the way for that wonderful global government that seems to do the Star Trek universe wonders.
WARNING: This signature violates Rule 5. Stay classy!
Superfluous:NY Fed chief urges global bank framework
OMG.
Nitroadict: ChaseCola: Mark B.: This clearly is a call for a global central bank. Would be disastrous if they actually managed to establish a global central bank. Might be better than a national central bank, at least this way countries can't print their ways through wars or debts. While we're at it, let's all hope that a global central bank paves the way for that wonderful global government that seems to do the Star Trek universe wonders.
lol, i'll pass on that one.
ChaseCola: Might be better than a national central bank, at least this way countries can't print their ways through wars or debts.
That's kind of naive. Banks are known to finance both sides of a conflict, to hedge their bets, and also to create conflicts for their political friends.
If you try to trick the market, it will get its revenge.
Solreyus
What would the Founders say?
well, no one really thought that we could have a one world government without having a one world bank did you? It seems to me it is a done deal as we speak, this was just a formality. The bankers will cause a depresion this world can not even begin to imagine and then people will demand a one world bank as the solution. Same story line as before but just on a global scale. Take this time to prepare your selves for the hard rain thats going to fall. Try and convince your neighbors and friends to do the same, for them to suggest such an idea shows that they have the plan in place and now it is just a matter of geting the world, particlurly the U.S., to want a one world bank.
we must resist the borg
Superfluous: What would the Founders say?
The founders rolled in their graves long ago.
Agree. Central banks are often inefficient. Global financial system was much more stable during Bretton Woods agreement.
Good, bad or irrelevant?
http://online.wsj.com/article/SB121416925522495095.html?mod=hpp_us_whats_news
Felix: Agree. Central banks are often inefficient. Global financial system was much more stable during Bretton Woods agreement.
Hmm...where do you see the global financial system moving in the future?
anonnymous:Same story line as before but just on a global scale.
I was thinking that maybe there is a positive side to this. With one global central bank the depressions would become simultanious all over the world instad of this mess that is happening today. Perhaps it would even shorten the recovery-time.
...setting aside that the depressions themselves would become Titanics instead of some small fisherboats.
One night I dreamed of chewing up my debetcard - there simply is nothing like hard cash in your pocket!
Don Roberto:I was thinking that maybe there is a positive side to this. With one global central bank the depressions would become simultanious all over the world instad of this mess that is happening today. Perhaps it would even shorten the recovery-time.
That's close to the right track, but the results would not be nearly as good as you hope. What it will do, in the short term, to allow another, perhaps the final, economic boom based not on actual productivity and sound economic priniciples, but on more quickly and efficiently draining the massive capital surplus the world has built up over the centuries. The resulting bust will be more widespread, devastating, and final than any yet seen - there will then be no lender of last resort to appeal to, no one left to bail out the system when the system is everything there is.
Even I'm becoming worried that the US is due for a complete collapse, perhaps as soon as the next 4-5 years, and I'm not prone to doomsday scenario thinking. This would buy a little more time to be prepared, but ultimately lead to a more complete collapse than even the US alone is capable of causing. I'd see it as an opportunity - to husband resources, accumulate capital and get it into hard assets like metals, land, etc., and prepare to begin rebuilding when the world has cleared the way for it by it's own stupidity. Why should we work at bringing the system down, when it seems all to willing to do the work for us?
The state won't go away once enough people want the state to go away, the state will effectively disappear once enough people no longer care that much whether it stays or goes. We don't need a revolution, we need millions of them.
histhasthai:That's close to the right track, but the results would not be nearly as good as you hope.
Well, I wasn't hoping to get a positive sum game out of all this. As you pointed out the booms will be more 'violent' (as I wrote to the end of my post). But these somewhat out of context analysis is exactly what those who make the decisions use to convince the public. They simply bring forward these half-truths which by themselves are not wrong but just don't give the whole picture.
histhasthai:Even I'm becoming worried that the US is due for a complete collapse, perhaps as soon as the next 4-5 years, and I'm not prone to doomsday scenario thinking.
I got a similar feeling sometime in January-February. But what I think is a really big problem is that if this 'doomsday' should come there might not be a way out. Since politicians have spent all this time convincing us that we are currently living in a capitalistic and free world, it's gonna take time to get the people accept the truth. And because almost everyone would then believe that capitalism was at fault (let's not forget that FDR is still a big hero who saved the world from the baad markets), it could very easily happen that the world could become entirely socialist.
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