WASHINTON — The dramatic expansion of financial regulation approved by Congress this week bears the stamp of Treasury Secretary Timothy Geithner more than anyone else and gives him vast powers to determine the final form of the new rules.
Half a year after some pundits were predicting Geithner would be booted from the Obama administration for poor performance, Geithner is poised to inherit authority to shape bank regulations, financial market oversight and a new consumer protection agency. Few Treasury secretaries have ever had such sweeping influence over such a wide realm.
The bill not only conforms closely to the initial draft Geithner released last summer, but also anoints him — as long as he remains Treasury secretary — as the chief of a new council of senior regulators. The legislation also puts him at the head of the new consumer bureau until a director is confirmed by the Senate, allowing Geithner to mold the watchdog in coming months. And it will be up to him to settle a raft of issues left unresolved by the bill — for instance, which financial derivatives will be subject to the tough new trading rules and which risky activities big banks will be required to spin off.
The legislation "will help restore the great strength of the American financial system, which — at its best — develops innovative ways to provide credit and capital, not just for our great global companies, but for the individual with an idea and a plan," Geithner told reporters shortly after the bill was approved.
It has been a remarkable turnaround for the 48-year-old Treasury secretary, who endured repeated calls for his head from lawmakers a few months ago. Anger over the Treasury's bailout of troubled banks was high. The unemployment rate was soaring. In a January interview, Geithner called the hubbub over his job security "a price of this office."
In the wake of the bill's passage, there is recognition within the administration as well as on Capitol Hill that Geithner is not going anywhere any time soon. White House officials said Geithner endeared himself to Obama and senior White House advisers by advocating a response to the financial crisis that later proved correct.
Geithner vigorously resisted calls by some lawmakers and financial experts to nationalize the nation's largest and most troubled banks during the recession's most perilous days. Instead, he helped get the financial system back on its feet, in particular by pressing for stress tests of big banks. The results of these tests showed that nearly all the banks would be able to weather the financial storm and quickly restored investor confidence.
"This is a very substantial victory for the president and it is a credit to Tim's leadership that we have achieved so comprehensive a reform so quickly," said Larry Summers, director of the National Economic Council, a senior adviser to Obama and Geithner's former boss.
The bill broadly reflects Geithner's faith in regulators and his overriding belief that large financial companies can be protected from financial upheaval if they set aside large enough capital reserves.
The bill passed this week does not specifically set new capital levels for banks, but it does direct U.S. regulators to work with their counterparts in other countries to set international standards. Leading this effort is just one of the ways Geithner will put his imprint on the banking industry.