Wednesday, February 23, 2011

Geithner Effectively Rules Out Need for Banks to Hold More Capital

Tim Geithner offered his assessment on Bloomberg of the US financial system.

In doing so, he effectively ended the international discussion on whether banks need to hold more capital.  It is hard to make a case that US banks need to hold more capital if the US financial system is much stronger than it was before the crisis.  Foreign banks can successfully argue that they too do not need to hold more capital than US banks as this level of capitalization results in a strong financial system.

His comments also confirm that the latest round of stress tests being carried out by US regulators were designed to conclude that the Too Big To Fail banks are adequately capitalized and can be permitted to resume paying dividends.

Given his track record in assessing the condition of the large, global banks being supervised while he was the President of the NY Fed, your humble blogger would prefer that these same banks provide current asset-level data so that market analysts and competitors can confirm his conclusion.

The U.S. financial system is in better shape than it was before the recession and is well placed to provide the funding needed for the economic expansion, Treasury Secretary Timothy F. Geithner said. 
“The core of the American financial system is in a much stronger position than it was before the crisis,” Geithner said today during a Bloomberg Breakfast with reporters in Washington. 
U.S. banks had net income of $87.5 billion in 2010, the highest since 2007, the Federal Deposit Insurance Corp. said today. The Standard & Poor’s 500 index has jumped 64 percent since March 2009, and corporate bond spreads have narrowed. 
“We can say with much more confidence now that the U.S. banking system and the U.S. capital market are much more likely to be in a position to finance the capital needs that come with a recovery,” Geithner said.

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