Geithner in 2006: credit derivatives support "efficiency and stability" of markets
by desmoinesdem, Fri Nov 21, 2008 at 12:14:30 PM EST
In May 2006 Timothy Geithner, president of the Federal Reserve Bank of New York and Barack Obama's likely choice for Treasury Secretary, gave a speech to the New York University Stern School of Business Third Credit Risk Conference. You can read the full text here. Some excerpts:
Credit derivatives have contributed to dramatic changes in the process of credit intermediation, and the benefits of these changes seem compelling. They have made possible substantial improvements in the way credit risk is managed and facilitated a broad distribution of risk outside the banking system. By spreading risk more widely, by making it easier to purchase and sell protection against credit risk and to actively trade credit risk, and by facilitating the participation of a large and very diverse pool of non-bank financial institutions in the business of credit, these changes probably improve the overall efficiency and resiliency of financial markets.With the advent of credit derivatives, concentrations of credit risk are made easier to mitigate, and diversification made easier to achieve. Credit losses, whether from specific, individual defaults or the more widespread distress that accompanies economic recessions, will be diffused more broadly across institutions with different risk appetite and tolerance, and across geographic borders. Our experience since the introduction of these new instruments--a period that includes a major asset price shock and a global recession--seems to justify the essentially positive judgment we have about the likely benefits of ongoing growth in these markets.
Despite the benefits to financial resilience, the changes in the credit markets that are the subject of your conference have also provoked some concerns and unease, even among those on the frontier of innovation and the most active participants in these markets.
These concerns are based in part on uncertainty--a candid acknowledgment that there is a lot we do not yet know about how these instruments and the increased role of nonbank institutions in these markets will affect how the financial markets are likely to function in conditions of stress. [...]
Let me conclude by reiterating the fundamental view that the wave of innovation underway in credit derivatives offers substantial benefits to both the efficiency and stability of our financial system.
Sounds like change we can believe in!
Update [2008-11-21 17:28:12 by Todd Beeton]:Bloomberg is reporting that Geithner at Treasury is a done deal.
President-elect Barack Obama picked Timothy Geithner, head of the Federal Reserve Bank of New York, to be his Treasury secretary, with Lawrence Summers getting a senior White House role, a Democratic aide said.Obama is also likely to nominate New Mexico Governor Bill Richardson as Commerce Secretary, and to announce his picks on Nov. 24, the person said on condition of anonymity.
Tags: banking, credit market, derivatives, Economic Policy, Economy, Federal Reserve Bank of New York, stock market, Timothy Geithner, Treasury Secretary (all tags)
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