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Geithner Wants Global Bank Deal Before 2010

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WASHINGTON -- The United States on Thursday said it would seek stronger capital and liquidity standards for banks as part of a global agreement by the end of next year to help prevent another financial crisis.

The proposal, expected to be pushed by Treasury Secretary Timothy Geithner at this weekend's G20 finance chiefs meeting, is aimed at tightening the global regulatory framework which failed to prevent the build-up of financial risk blamed for the latest financial crisis.

"A comprehensive agreement on new international capital and liquidity standards should be reached by December 31, 2010, and should be implemented in national jurisdictions by December 31, 2012," the Treasury Department said in a statement on the eve of the two-day talks beginning Friday in London.

The plan calls for "core principles" that should guide reform of the international regulatory capital and liquidity framework "to better protect the safety and soundness of individual banking firms and the stability of the global financial system and economy."

Geither said Wednesday that the United States would outline a framework of principles to begin the discussion 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," he said.

The banking sector was a major casualty of the financial crisis stemming from a US housing mortgage meltdown that shook the United States, Europe and other countries and slammed the brakes on global growth.

In the United States, the crisis led to the collapse of the venerable investment bank Lehman Brothers and a massive government bailout of financial institutions.

"The global regulatory framework failed to prevent the build-up of risk in the financial system in the years leading up to the recent crisis," the statement said.

Major financial institutions around the world had reserves and capital buffers that were too low, used excessive amounts of leverage to finance their operations, and relied too much on unstable, short-term funding sources, it said.

"Going forward, global banking firms must be made subject to stronger regulatory capital and liquidity standards that are as uniform as possible across countries," it said.

The Group of 20 developed and developing nations is also expected to discuss European proposals to set rules on bankers' bonuses that they say should be based on long-term, not short-term, success to discourage unnecessary risk taking.

With Japan, France and Germany officially out of recession, the meeting of G20 finance ministers and central bank governors, in preparation of a summit later this month, is also expected to consider the fate of the massive fiscal stimuli introduced at the height of the crisis.

The G20 leaders are scheduled to hold a September 24-25 summit in Pittsburgh, Pennsylvania, hosted by President Barack Obama.