WASHINGTON The United States urged Europe and Asia to match its efforts to make the financial industry safer, saying on Thursday it likely had done enough to ensure taxpayers will not have to bail out banks again in future crises.
Treasury Secretary Jack Lew vowed to keep any new free trade deal from weakening U.S. financial regulations, saying other nations had been moving "far more slowly" than America in the area of derivatives reform.
Washington is currently discussing potential trade deals with the European Union and with a group of countries in the Asia-Pacific region, and talks with EU officials are expected to resume in the December 16 week in the U.S. capital.
"We will not allow these agreements to serve as an opportunity to water down domestic financial regulatory standards," Lew said in a wide-ranging speech on U.S. efforts to tighten rules for Wall Street.
A raft of measures taken after the financial crisis had made a repeat of the costly 2008 bank bail-out unlikely, Lew said, though it was impossible to tell whether enough had been done.
"If, in the future, we need to take further action, we will not hesitate," he said.
Some left-wing U.S. politicians have submitted proposals to cut the size of big Wall Street banks, arguing that the 2010 Dodd-Frank Wall Street reform act does not solve the issue of banks that are "too big to fail."
Pieces of the Dodd-Frank act, which aims to prevent a repeat of the 2007-09 financial crisis, are still being implemented. U.S. regulators plan to finalize a rule this month that will limit Wall Street firms when they make trades with their own money.
Lew said he supported the draft of this rule, which regulators will begin voting on next week, saying it would prohibit risky trading bets like the so-called "London Whale" debacle in which employees at JPMorgan Chase & Co's London offices lost $6.2 billion in derivative trades. Lew said the rule, known as the Volcker Rule after former Federal Reserve Chairman Paul Volcker, would keep firms from masking their trade hedges that reduce their risks.
One challenge in the negotiations has been the differences in financial regulations between Washington and Brussels. The EU wants financial regulation to be a central part of an agreement whereas Washington is resisting, worried this will bog down the already complex talks.
European officials have specifically said the Volcker Rule should be part of the trade talks, for which they held a second round last month. EU regulations on proprietary trading are not as strict as the U.S. regulation is expected to be.
EU negotiators, however, have backers in the powerful U.S. financial services lobby when it comes to including Wall Street regulations in the trade talks.
The Securities Industry and Financial Markets Association (SIFMA), which represents many Wall Street firms, said trade talks that include financial services could make regulations more efficient across national borders.
"There is no evidence that the Europeans are watering down their new regulatory scope," SIFMA said in a statement.
Lew said he expected other countries to follow America in efforts to make the financial system safer and avoid future crises. He said U.S. reforms mean financial firms in the United States can now be broken up quickly if they pose a risk to the broader financial system.
"We will press other jurisdictions to match our robust standards — including in Europe and across Asia," he said.
Lew also said that short-term borrowing by banks remained a potential risk for the financial system, because these markets can be fickle in times of crisis. The Federal Reserve is working on proposals to make them safer.
(Reporting by Jason Lange; Editing by Chizu Nomiyama)