Testifying before the House Finance Committee, New York Federal Reserve President Tim Geithner said final judgments on regulatory reform should be reserved until crisis ends.
"The U.S. and global financial systems are going through a very challenging period of adjustment. The critical imperative today is to help facilitate that adjustment and to cushion its impact on the broader economy. The forces that made the system vulnerable to this crisis took a long time to build up, and the system will need some time to work through their aftermath," said Geithner.
Geithner commented that the financial system will take time to recover and that the current regulatory system is no longer appropriate.
"The challenge is in achieving the right balance between efficiency ad resilience, between innovation and stability. Our financial system has much strength, and we need to examine ways to build on those while making the system more resilient to future shocks. Achieving this balance will involve a very complicated set of policy choices. Until we get through this crisis, it will be hard to make definitive judgments about the appropriate scope and nature of the changes that will be necessary," said Geithner.
Geithner added that it is critical to facilitate adjustments in the financial system.
In a question and answer session following his testimony, Geithner said there is a need for a global initiative for regulatory reform. He added that an international framework would help standardize the rules.
Geithner warned that investment banks should carefully manage credit default swap exposure. He noted that the Fed's liquidity tools are helping to boost confidence, while also acknowledging that the Fed's use of liquidity tools has declined. He added that investment banks have made "substantial progress."
By Steve Stecyk and edited by Sarah Sussman