Geithner pushes to regulate derivatives

Published: July 10, 2009 at 11:28 AM

WASHINGTON, July 10 (UPI) -- U.S. Treasury Secretary Timothy Geithner told lawmakers Friday that over-the-counter derivatives trading should be subject to strong regulatory oversight.

The market that "grew explosively" to a $700 trillion behemoth by 2008 was left largely unregulated, allowing banks to gain "substantial regulatory capital relief" by turning to "special purpose insurers subject to little or no initial margin requirements," he said.

In layman's terms, the banks insured themselves against losses by buying insurance from unregulated companies. Since that looked great on paper, it allowed the banks to stretch their risks even further. When the housing bubble burst, the banks and insurers, like American International Group, were both pushed to the brink of collapse.

Geithner told members of the House Financial Services and Agriculture Committees that derivatives required a four-step approach.

Geithner proposed a clearinghouse system for all derivatives trading that would remove leave "credit exposure to the clearinghouse only," dissolving risk to counter-parties.

The system should also include regulation to prevent "market manipulation, fraud and other abuses," and be fully transparent, he said. In addition, he advocated for standardized trading, "ensuring that OTC derivatives are not marketed inappropriately to unsophisticated parties."

© 2009 United Press International, Inc. All Rights Reserved.
Order reprints



Additional News Stories
Furthest Land In BC Dirt Mile Shocker (27 min)
Mayor, 92, wins fifth term (46 min)
Strike threatened at Arizona supermarkets (55 min)
Goldikova Scores Again in BC Mile
Italy on verge of clinching Fed Cup title
It's Federer and Djokovic in Swiss final
'Gone Wild' creator Francis gets probation
fark
For all the "Hold my beer and watch this" crowd, you now don't have to burn your house down this...
Boy who left Vietnam as a 5-year-old refugee crammed onto a fishing trawler returns 34 years later...
Miss England, who looks like a drag queen, steps down after nightclub brawl. Please welcome her...
17-year-old who thought the "pain and agony" he dealt with when running was normal, finds out he's...
Photoshop this bon voyage bid
Hasboro is having a diorama contest for their toys. Top 5 here. Much better than my use of toilet...