As president of the Federal Reserve Bank of New York, Timothy
Geithner has been at the epicenter of--and has been a regulatory
point person on--market innovations such as loan securitization,
structured products and credit derivatives and their systemic risk
and volatility impacts. He took on ultimate responsibility for the
dialogue that began two years ago between global regulators and
major derivatives dealers to clear away the backlog of unconfirmed
credit default swap trades, and the more recent extension of that
effort into over-the-counter equity derivatives.
 Geithner's public
speaking on these issues has taken a macroeconomic perspective that
has led him to conclude that the benefits of these innovations are
considerable, that history teaches useful lessons about how
supervisory authorities and risk management experts should be
tracking and monitoring them going forward, and that the best way
to prepare for potential but unpredictable crises is to have "shock
absorbers" in place.
The most productive focus of policy
attention has to be on improving the shock absorbers in the core of
the financial system infrastructure.
Two recent speeches summed up much of Geithner's thinking along
these lines. On March 23 he addressed the Federal Reserve Bank of
Richmond's Credit Markets Symposium in Charlotte, N.C. on "Credit
Market Innovations and Their Implications." That speech is
excerpted here, followed by a portion of his May 15 address to the
Federal Reserve Bank of Atlanta's annual Financial Markets
Conference, which was focused on credit derivatives. |
