August 5, 2010 Leave a comment
U.S. Treasury Secretary Timothy Geithner delivered a speech this week at New York University’s Stern Business School to kick-off the massive effort to craft new financial regulations to comply with the Dodd-Frank Act of 2010. In his speech, he promised to streamline and simply the rules while working to codify them at an expeditious pace. He also provided the following call to action for the financial services industry.
For the financial industry, your core challenge is to restore the trust and confidence of the American people and your customers and investors around the world. You will have to make your own decisions about how best to do that, but, I thought, given that I’m here in New York, I’d offer a few suggestions as an interested observer.
Don’t wait for Washington to draft every rule before you start changing how you do business. Get ahead of the process and out in front of your competitors. Find new ways to improve disclosure for your consumers. End hidden fees. Don’t push people into loans they can’t afford.
Demonstrate to your business customers – small and large – that after running for cover during the peak of the crisis you are ready and willing to take a chance on them again. Change how you pay your executives so you are not rewarding them for taking risks that could threaten the stability of the financial system.
Make sure you have board members who understand your business and the risks you are taking. And, focus on improving your financial position so that your financial ratings, your cost of capital, the amount you have to pay to borrow, all reflect your own financial strength and earnings prospects, not the false expectation that the government will be there in the future to rescue you.
You can do all of that right now, even before the first new rule of financial reform is written.
Secretary Geithner is right to encourage banks to move now in the right direction as opposed to waiting for the rules to be written. Doing so will not only better prepare the companies for the change to come, but will also provide a significant competitive advantage that will surely result in a similar increase in shareholder value.