03 September 2009

Washington — U.S. Treasury Secretary Timothy Geithner says a meeting of the Group of 20 finance ministers in London is an opportunity to assess what is working and what is still needed to pull the global economy out of one of the deepest recessions in decades.

“If you look at where we are today versus where we were in March or April, I think it’s reasonable to conclude that the force of the policy response that we put in place here and the G20 … has been very successful,” Geithner said at a September 2 press briefing in Washington. “You’re seeing now the first signs of growth … in this country and countries around the world.”

The Group of 20 finance ministers and central bank governors are meeting September 4–5 in London in preparation for the G20 Summit in Pittsburgh, September 24–25. The G20, which was formed in 1999, includes 19 of the world’s largest national economies and the European Union. The Pittsburgh Summit is a follow-up to a similar meeting held in London last April and an earlier summit held in Washington in November 2008.

Also participating in G20 summits are the managing director of the International Monetary Fund (IMF), the World Bank president, and the chairmen of the IMF’s Financial Committee and Development Committee.

The G20 countries represent about 90 percent of the global gross national product and nearly 80 percent of world trade. They also include two-thirds of the world’s population.

Geithner said there has been a significant improvement in the basic confidence and stability of the world’s financial markets, which is reflected in lower borrowing costs.

“Our emphasis is going to be on trying to make sure that everyone understands that our basic imperative is to make sure we have the foundation in place for a self-sustaining recovery led by private demand, and that’s going to require more work,” Geithner told journalists.

In April, finance ministers and central bank governors reached a consensus on a framework of international financial reforms, though making those reforms a reality is based on legislating at the national level to make them operational, Geithner said.

“We’re going to be outlining a framework of principles to begin the discussion — not to reach agreement on, but to begin a framework or discuss a framework of principles on a new international capital accord that will put in place — again, once the crisis is behind us — a more conservative framework of constraints on leverage in the financial sector across the major, globally active financial institutions,” Geithner said.

This, Geithner said, is a critical part of making the global financial system more stable and reducing the risk that in the future another crisis could occur with a failure of large, individual financial institutions, which could threaten the overall stability of the financial system.

“That’s not something that we can accept. And a critical part of preventing that in the future is to know that the system will require more conservative, carefully designed, comprehensive standards for capital and liquidity management for these major institutions,” he said.

German Chancellor Angela Merkel and French President Nicolas Sarkozy are expected to press G20 leaders to limit the size of banks, regulate executive bonuses and tighten capital requirements. Many international economists and world leaders have expressed concerns that a lack of sufficient regulation on banks and financial institutions contributed to the recession and its aftermath. Geithner said he and his fellow finance ministers will not talk about numbers at this meeting, but about a framework for principles, and also begin talking about timetables for future regulatory commitments.

“I think one of the most important things we’ve done in this crisis is to bring the major economies of the world together, including the major emerging economies like China, India, and to get the world to commit to a very aggressive approach to arrest the crisis,” Geithner told reporters.

President Obama and his administration are considering a requirement that banks, especially those deemed too large to fail, maintain larger capital levels, but doing so requires an extraordinary balance of competing regulations and requirements.

“This is of course a critical part — it’s not the only part, but a critical part — of making the financial system more stable in the future and reducing the risk that we face in the future,” Geithner said. “This is not something we can take a long time to do.”

He said one critical challenge facing the G20 economies is developing an exit strategy. After a self-sustaining recovery is in place, the nations will need to reverse and dial back extraordinary actions taken to end the crisis, such as the huge stimulus measures taken by the U.S. government and Federal Reserve System to protect and strengthen the U.S. economy.

“That is going to require a very careful strategy of coordination across countries, making sure that across the monetary policy, fiscal policy and financial measures we’ve taken, we’re finding the right balance between — and it’s a difficult balance,” Geithner added.

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