Geithner urges a global approach to regulating derivatives trading

Treasury Secretary Timothy F. Geithner said he wants global minimum standards on derivatives trading and urged regulators to avoid a “race to the bottom” in which financial risk moves to the least-supervised economies.

The U.S. Commodity Futures Trading Commission and Securities and Exchange Commission are writing regulations required by the Dodd-Frank Act, the financial overhaul enacted in July, after largely unregulated derivatives helped fuel the 2008 credit crisis. Dodd-Frank seeks to reduce risk and boost transparency in the $601-trillion global swaps market by having most swaps guaranteed by central clearinghouses and traded on exchanges or other venues.

“We don’t want to see another race to the bottom around the world,” Geithner said Monday at the International Monetary Conference in Atlanta. “As we act to contain risk in the U.S., we want to minimize the chances that it simply moves to other markets around the world.”

The Dodd-Frank Act mandates the establishment of heightened capital standards for banks with assets of more than $50 billion. In addition, global regulators are hammering out accords in Basel, Switzerland, that would more than double the minimum common equity requirement for banks.

“Capital requirements cannot bear the full burden of protecting the system against risk, and they should be considered in the context of the reinforcement provided by these other reforms,” Geithner said.

In the U.S., Geithner said regulators would require the largest U.S. companies to hold an additional surcharge of common equity.

Britain’s “experiment in a strategy of ‘light touch’ regulation to attract business to London away from New York and Frankfurt ended tragically,” he said. “That should be a cautionary note for other countries deciding whether to try to take advantage of the rise in standards in the United States.”

Geithner said the U.S. “will do what we need to do to make the United States financial system stronger. We will do so carefully. And as we do it, we will bring the world with us.”