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World / US and Canada

Geithner warns of threats to US financial system

(Xinhua) Updated: 2012-07-26 06:59

WASHINGTON - US Treasury Secretary Timothy Geithner said on Wednesday that the eurozone debt crisis and US political stalemate over fiscal policy would pose threats to the country's financial stability and economic growth.

"The ongoing European crisis presents the biggest risk to our economy," Geithner said in his testimony before the House Financial Service Committee about an annual report of the Financial Stability Oversight Council (FSOC) to the Congress.

As chairman of the FSOC, Geithner said that US financial institutions have significantly reduced their exposure to the most vulnerable economies of Europe over the past two years, and that they hold substantial levels of capital against the remaining exposures.

However, given the size of the combined European economies and its impact on the global economy, "a severe crisis in Europe would necessarily have very substantial, adverse effects on the United States," he added.

Geithner said the US economy is still expanding, but the pace of economic growth has slowed during the last two quarters.

"The slowdown in US growth could be exacerbated by concerns about approaching tax increases and spending cuts, and by uncertainty about the shape of the reforms to tax policy and spending that are necessary to restore fiscal responsibility," he noted.

Geithner warned the lawmakers that their failure to enact reforms in a timely and credible manner will be damaging to future US economic growth.

As for the US financial system as a whole, Geithner said the potential threats underscore the need for continued progress in repairing the remaining damage from the financial crisis and enacting reforms to make the system stronger for the long run.

The FSOC, an entity created under the Dodd-Frank Act and charged with tasks including identifying risks and promoting market discipline, offered recommendations to help improve US financial stability. The Council supported continued attention to strengthening capital buffers and stress tests.

Acknowledging the important progress regulators have made in designing and implementing regulations necessary for financial reforms, Geithner stressed that they still "have a lot of work ahead."

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