UPDATE: Geithner: Substantial Compensation Reforms Necessary
09 Juni 2009 - 7:28PM
Dow Jones News
U.S. Treasury Secretary Timothy Geithner told a Senate panel
Tuesday he sees the Securities and Exchange Commission and Federal
Reserve as having key roles in reforming executive pay in the
financial system.
Speaking at a hearing on the Treasury Department's budget,
Geithner said the SEC has some important obligations in the area of
compensation and it might seek new authorities. Additionally, he
noted that the Fed is already in the midst of considering new
compensation guidelines.
"Those are two ways we can have influence," Geithner told the
panel.
He added that the Obama administration will include its thoughts
on compensation in the broader financial regulatory overhaul plan
it intends to release next week.
Geithner added, in response to senators' questions, that the
administration isn't planning to put just one agency in charge of
monitoring systemic risks to the financial system. While the
administration will propose streamlining the financial regulatory
system, "we're not going to propose to concentrate all authority
for systemic issues in only one place - too complicated, really, to
do that," he said.
He also added that the administration isn't expecting to lay out
concrete recommendations related to the government-sponsored
enterprises Fannie Mae (FNM) and Freddie Mac (FRE) in its proposal
next week. Addressing the future of the GSEs is very important to
the administration, he said, but the White House plans to defer
recommendations on that front for a bit longer. "It's just a little
early .... We want to do this carefully," he said.
Turning back to the executive-pay issues that will be addressed
in the regulatory reform proposal, Geithner said it is time the
financial industry adheres to new guidelines.
"We need to help encourage substantial reforms in compensation
reforms," he said. "I think boards of directors did not do a good
job. I think shareholders did not do a good job."
Geithner said compensation should be tied to better measures of
long-term investment and they shouldn't incentivize excessive
risk-taking.
Meanwhile, Geithner told lawmakers that, despite the Obama
administration's recently-launched programs to boost the housing
market, he still sees a challenging road ahead for homeowners.
While he admitted that the federal government was slow to
address the housing crisis, he said the Obama administration has
provided some very powerful incentives that should help homeowners
refinance their mortgages or modify their loans so that they are
more affordable.
Still, it might not be until this autumn before the government
can give a sufficient progress report on its housing
initiatives.
"We are at the very early stage of implementing that program,"
Geithner told the Senate appropriations panel, adding that he
expects eventually to see a very substantial acceleration of the
pace of home-loan modifications.
Defending the administration's housing efforts, he also noted
that the Treasury Department's new housing programs, together with
the Federal Reserve's programs, have successfully brought down
mortgage rates.
Subcommittee Chairman Sen. Richard Durbin, D-Ill., however, said
he still remains skeptical that the administration's efforts will
work. The administration needs to make it mandatory that banks
participate in its housing initiatives, Durbin said.
-By Maya Jackson Randall, Dow Jones Newswires; 202-862-9255,
maya.jackson-randall@dowjones.com