As Crisis Loomed, Geithner Pressed But Fell Short

As Crisis Loomed, Geithner Pressed But Fell Short - 4/3/2009

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

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As Crisis Loomed, Geithner Pressed But Fell Short, Before Timothy Geithner became Treasury chief, he regulated major U.S. banks. Now he says: "We're having a major financial crisis in part because of failures of supervision."
Robert O'Harrow Jr. and Jeff Gerth

washingtonpost.com. April 3, 2009
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EXCERPT: Although Geithner repeatedly raised concerns about the failure of banks to understand their risks, including those taken through derivatives, he and the Federal Reserve system did not act with enough force to blunt the troubles that ensued. That was largely because he and other regulators relied too much on assurances from senior banking executives that their firms were safe and sound, according to interviews and a review of documents by The Washington Post and the nonprofit journalism organization ProPublica. A confidential review ordered by Geithner in 2006 found that banking companies could not properly assess their exposure to a severe economic downturn and were relying on the "intuition" of banking executives rather than hard quantitative analysis, according to interviews with Fed officials and a little-noticed audit by the Government Accountability Office. The Fed did not use key enforcement tools until later, after the credit crisis erupted, according to its records and interviews. Geithner defended his tenure as New York Fed president in an interview last week. He said he had been "deeply concerned about risk in the system" and worked assiduously behind the scenes to cajole banking institutions to do more to identify weaknesses and protect the financial system. But he also took some responsibility for falling short. […]. As part of Geithner's confirmation process for Treasury secretary, Democratic and Republican senators questioned why he and the New York Fed did not take a tougher approach with the troubled institutions it did regulate, such as Citigroup, then the largest under its supervision and the one hardest hit by the financial crisis. Geithner, who maintained ties to senior bank executives and others in the financial world, had a particularly close relationship with former Treasury secretary Robert E. Rubin, a mentor then serving as a senior executive at Citigroup. In 2007 and 2008, Geithner held discussions with Citigroup officials dozens of times, more than with any other firm, according to interviews and documents, including Geithner's daily calendar. Some lawmakers in both parties are asking whether bank regulators in general were too close to the institutions they oversaw. Geithner says meetings with executives from Citigroup and other firms were a routine part of his job. He said checks and balances built into the Federal Reserve system preserve the independence of Fed officials.

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