Geithner Wants ‘Very Substantial’ Changes in Wall Street Compensation

May 22, 2009 10:40am

ABC News’ Matthew Jaffe and Rick Klein report: Treasury Secretary Tim Geithner said in an interviewing airing this weekend that he wants to see "very, very substantial change" in executive compensation practices on Wall Street, and said he will unveil the administration’s plan for reforms "within weeks."

"I don’t think we can go back to the way it was," Geithner said in an interview on Bloomberg TV’s "Political Capital with Al Hunt.” "That would not be responsible for us, not good for our financial system. So I think we’re going to need to see very, very substantial change in practice."

"We want to start the process of putting in place ‘say on pay’ type requirements and broader standards that supervisors look at to make sure that the incentive structures that compensation creates don’t overwhelm the checks and balances in the system again," he said.

Earlier this week Geithner had said the government should not set compensation caps, but rather put in place "broad constraints" that emphasize long-term incentives, not short-term ones, to prevent excessive risk-taking.

The administration’s compensation plan is only one of many upcoming changes, he noted.

"We’re going to probably propose substantial changes in the existing framework, because, again, our framework is designed for a different financial system a long time ago," Geithner said. "It has not kept pace with change. It’s too complex. There are too many regulators, and there are too many gaps in the system. So we’re likely to propose pretty significant changes across the board."

One reform the administration has called for is the establishment of a systemic risk regulator. A white paper on this issue, Geithner said, will be released "in the next several weeks.”

In the interview with Hunt, Geithner also expressed concern about big banks repaying TARP funds too quickly and then coming back to the government for more help in the future. 

"I think that’s a real concern, but I think we’re going to be very careful to make sure that we reduce the incentives for that to happen," the Treasury chief said.

A number of major banks, such as JP Morgan Chase, Goldman Sachs, and Morgan Stanley, have all reportedly applied to pay back the TARP money. But Geithner noted that financial institutions can only pay back the money if they meet certain requirements.

"We’re saying, in order to repay, it’s important you really have a lot of capital above what you need, but also that you demonstrate that you can go issue unguaranteed debt in the markets today on a substantial scale, because we want to see proof that the market is going to judge you strong enough to do that on your own. And those are important conditions."

However, Geithner cautioned that the government could not require these banks to boost lending.

"It’s very hard for the government of the United States to force banks to lend," he said.

"Lots of countries have got themselves in deep trouble with policies that force their banks to lend," he added. "That’s likely to lead to a weaker, less efficient banking system, less efficient economy. What I think we need to do is make sure they have the capacity to lend."

In the interview, Geithner was asked about Republican claims that the Obama administration was leading the country towards socialism, claims he vigorously refuted.

"I think it’s the least plausible charge anybody could say about what this president is trying to do in terms of policy," he stated. "I mean, I think if you look at the range of things he’s proposed and he’s started putting in place, there is a deep appreciation and recognition that we need the markets to work, that growth and productivity depends on the markets working."

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