Geithner to Defend Financial Stewardship in Testimony
Treasury Secretary Timothy Geithner plans to defend his stewardship of the financial sector on Wednesday at a Capitol Hill hearing where he will face aggressive questioning about his role in the Libor rate-rigging scandal.
Geithner is slated to testify to the House Financial Services Committee on the Financial Stability Oversight Council’s second annual report, but he is expected to be grilled by lawmakers over his handling of bank admissions of rate manipulation discovered five years ago when he was president of the Federal Reserve Bank of New York.
Perceptions that Geithner has been preoccupied with protecting Wall Street have plagued the Treasury secretary throughout his tenure, and the Libor case has revived those criticisms.
Geithner made no mention of the latest banking scandal in his prepared remarks, which were obtained by National Journal.
Instead, he focused on bright spots such as the improved health of the banking sector achieved by higher capital positions and a reduction in risk-taking that has shed $3 trillion in leverage since the financial crisis.
But he said that the recovery faces risks from the European debt crisis and the "fiscal cliff" of automatic tax hikes and spending cuts that will take effect if Republican and Democratic lawmakers cannot reach a deal by the end of the year .
“The ongoing European crisis presents the biggest risk to our economy,” he is expected to say.
Geithner also seeks to put a positive spin on the Troubled Asset Relief Program -- the controversial $700 billion bailout of the financial sector -- pointing out that interest on bank loans has generated $19.5 billion.
In his role as New York Fed president, Geithner was a chief architect of TARP. A new book, Bailout, written by TARP’s former watchdog Neil Barofsky, has reignited accusations that Geithner has had an overly cozy relationship with Wall Street.
Both Barofsky and former Federal Deposit Insurance Corp. Chairman Sheila Bair, have questioned Geithner’s response on Libor. Bair said she didn’t understand why the New York Fed didn’t investigate, and Barofsky said the matter should have been reported to the Justice Department.
Geithner has called Barofsky’s allegations, “deeply offensive” and the result of an “urban myth.”
And he has said that he “acted early and very forcefully” on Libor, by bringing the situation to the attention of the “U.S. enforcement community” and by making recommendations to British regulators for reform.
In the prepared testimony, Geithner blamed problems abroad for slowing global economic growth.
“Europe is responsible for much of this, but not all of it. Growth in China, India, Brazil, and other large emerging economies has slowed for a variety of reasons unique to those countries,” he says in his written statement.
He also puts onus on lawmakers to balance tax and spending to “restore fiscal stability.”
“The failure of policy makers to enact reforms in a timely and credible manner will be damaging to future economic growth,” he is expected to say.
Geithner faces another round of likely heated questioning before the Senate Banking Committee on Thursday.
