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Geithner Says Volcker Rule Likely to Allow Market-Making

U.S. Treasury Secretary Timothy Geithner
Timothy F. Geithner, U.S. treasury secretary Photographer: Andrew Harrer/Bloomberg

U.S. Treasury Secretary Timothy F. Geithner said he’s confident regulators will be able to complete the Volcker rule ban on proprietary trading while allowing exceptions for market-making.

Geithner, in a CNBC television interview today, said he thinks U.S. regulators will be able “to do what the law requires -- that as we are limiting the risk these large institutions pose to the world, could pose in the future -- we’re preserving well-designed, carefully constructed exceptions for market-making hedging, as the law intended.”

The so-called Volcker rule, named for former Federal Reserve Chairman Paul Volcker, was included in the Dodd-Frank Act to restrict risky trading at banks that operate with federal guarantees. Central bankers and regulators from around the world have voiced concern that the rule, which would apply to the U.S. operations of foreign banks, may also extend to firms’ operations outside the country.

On Europe, Geithner said it’s now “much less likely” that the continent’s debt crisis will cause global contagion and derail the U.S. economic recovery. Group of 20 finance ministers, including Geithner, will discuss the European crisis during meetings in Mexico City this weekend.

“Europe has made a lot of progress in trying to convince investors around the world, in Europe, that they are going to do what’s necessary to reduce the risk of a catastrophic financial failure in Europe,” he said.

ECB Profits

The region’s finance ministers approved a 130 billion-euro ($172 billion) package for Greece on Feb. 21 by tapping into European Central Bank profits and convincing investors to provide more debt relief to the Mediterranean country.

Europe still has “more work to do,” Geithner told CNBC. “The critical next step for them, as you’ve heard the Europeans acknowledge, is to build a stronger firewall.”

Geithner reiterated the U.S. position that the International Monetary Fund can play a larger role in Europe’s recovery if the region “takes the necessary steps to put in place for the world a sufficiently strong firewall.”

“What we don’t want to see is the IMF substitute, and it really cannot substitute, for a stronger European response,” he said. “Most countries around the world have the same view we do.”

Geithner, 50, also said oil prices have risen because global economic growth “is gradually getting stronger” and Iran is doing some “saber-rattling, and that’s causing a little uncertainty” in the oil market.

“Iran can do a lot of damage to the global economy,” he said.

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