Financial Regulatory Forum

WASHINGTON, Sept 22 (Reuters) – U.S. Treasury Secretary Timothy Geithner said in testimony prepared for delivery on Wednesday that the United States would not identify in advance financial firms that it views as systemically important.

Geithner also issued a full-throated defense of President Barack Obama’s plan to create a new consumer financial watchdog despite resistance from industry and existing bank regulators.

“Our proposal will not create new bureaucracy for banks,” Geithner said in remarks to the House of Representatives’ Financial Services Committee posted on its website.

“It will consolidate fragmented consumer authorities into one agency, the Consumer Financial Protection Agency (CFPA), which will write rules, oversee compliance, and address violations by non-bank providers, as well as banking institutions,” he said.

The Obama administration plans to subject financial firms judged to be so important that their failure would threaten the entire system to a new and tougher regulatory regime. This would impose higher capital requirements on them to offset the perceived benefits of being deemed too-big-to-fail.

“Crucially under our proposals, there will be no fixed list of Tier 1 FHCs (financial holding companies), and identification of a firm as a Tier 1 FHC will not convey a government subsidy,” Geithner said.

The measures are part of a sweeping overhaul of the U.S. regulatory system after the financial crisis last year in which investment bank Bear Stearns was bailed out but its rival Lehman Brothers was allowed to fail.