Geithner Urges Quick Passage of Financial Reform Legislation to Avoid Global Regulatory Arbitrage

In a Q&A session at the Export-Import Bank, Treasury Secretary Tim Geithner urged Congress to quickly pass financial regulatory reform legislation for moral, economic and national security imperatives. On the domestic front, US companies and businesses need to know the financial regulatory rules of the game, he said, and strong financial regulation will support growth and innovation. There is also a growing sense of a great obligation to fix the financial regulatory system.

In his view, delay in passing the legislation also has international implications. Since the financial markets are global, the US must lead in shaping financial reform legislation. If we do not, warned the Secretary, other countries will go their own way on financial regulatory reform and US markets will run the risk of having to live with inconsistent and weaker regulations globally, which may raise the specter of regulatory arbitrage.

The Secretary’s remarks came against the backdrop of a growing dispute over the alleged protectionist tendenecies of the proposed EU Directive on hedge fund regulation. In a recent letter to Michele Barnier, EU Internal Market Commissioner, Treasury Secretary Tim Geithner expressed concern over provisions in the proposed Alternative Investment Funds Management Directive that would discriminate against US hedge funds and deny them the access to the EU market that they currently enjoy.

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