Testifying today before House FinServ, Treasury Secretary Geithner strongly defended the most recent agreement on the Basel III capital and liquidity rules (see Client Report CAPITAL169).  Due to the 2009 stress test, Treasury believes most U.S. banks are well able to meet the global standards and that any shortfalls can be filled through retained earnings.  To allay Member concerns over Basel III’s impact, Mr. Geithner stated that it will have the greatest effects on only the largest banking institutions and that small-bank problems are primarily a result of concentrated exposures to commercial real estate.  He also said that the U.S. will retain a less-stringent standard for small banks.  Refuting international fears that the U.S. will duck Basel III, the Secretary stated that U.S. rules will be in place by year-end 2012, as required in the latest agreement. Conversely, Chairman Frank drew attention to provisions in Dodd-Frank (see FSM Report SYSTEMIC29) that permits the U.S. to deny access to any financial firm from a weaker regulatory regime (which he called “rogue nations”).  Secretary Geithner said the U.S. will press hard for uniform international implementation of Basel III and use this power as needed.  Ranking Member Bachus (AL) expressed frustration with the Administration’s appointment of Elizabeth Warren as a special adviser on the CFPB (see FSM Report CONSUMER14).  Secretary Geithner reiterated defense of the CFPB and said a nominee will be sent to head the agency.  This report analyzes today’s session.

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