Geithner says U.S. banks ready for new capital rules

WASHINGTON — Treasury Secretary Timothy Geithner said Wednesday that U.S. banks are in a good position to meet new global capital standards because of the stress tests conducted in the United States last year.

In testimony to the House Financial Services Committee, Geithner praised the new global rules on capital adopted at a meeting earlier this month in Basel, Switzerland.

He said that stress tests conducted in spring 2009 in the U.S. forced banks to raise needed capital, the cushion that banks have to hold against losses.

Because of those tests, Geithner said, U.S. banks are in a strong position internationally and will be able to meet the new requirements.

Geithner said that most banks will be able to increase their capital cushions through their projected future earnings. That means that they will not have to cut back on their lending as they build up their capital reserves.

The new capital standards, Geithner said, "will significantly lower the probability and severity of future financial crises and it will help protect taxpayers by limited excessive risk-taking by financial institutions."

The so-called Basel III rules will gradually require banks to keep more capital on hand to absorb potential losses. Some critics have voiced concerns that the standards may be raised so high that they will limit the amount of money banks will have available to make loans.

The rules were adopted earlier this month by banking regulators from major countries, including Federal Reserve Chairman Ben Bernanke. Geithner said they will be reviewed by leaders of the Group of 20 major countries at their November summit in South Korea.

Geithner told the panel the administration will be pushing to get the G-20 leaders to endorse the measures so that implementation can begin. The United States has the authority to impose the tougher capital standards through provisions in the sweeping financial regulatory law that was approved this summer.

Another key part of that legislation was creation of a new Consumer Financial Protection Bureau. Last week, Obama selected Harvard law professor Elizabeth Warren to serve as a special adviser to help set up the new agency. In that job, she will not require Senate confirmation, bypassing a potential confirmation fight.

Rep. Spencer Bachus, the ranking Republican on the House committee, pressed Geithner for assurances that Warren will be allowed to testify before Congress during the period that she oversees creation of the new agency.

Geithner said the administration did not intend to exercise any claim of executive privilege to keep Warren from testifying. He also said that Obama would eventually nominate a person to serve as the agency's director. Geithner did not address the possibility that the president could still decide to pick Warren as the first director once the bureau is set up.