Geithner says can't take all risks out of banking

U.S. Treasury Secretary Tim Geithner testifies before the Senate Finance Committee on “The President's Proposed Fee on Financial Institutions Regarding TARP (Troubled Asset Relief Program) Part 2” on Capitol Hill in Washington, May 4, 2010. REUTERS/Kevin Lamarque

WASHINGTON (Reuters) - Treasury Secretary Timothy Geithner said on Thursday that banks must be able to engage in some risk-taking to help their customers and it would be a mistake to remove their ability to do so.

The Treasury released an excerpt from testimony that Geithner is scheduled to give to the Financial Crisis Inquiry Commission in which he says it is incorrect to think that stability comes from completely separating banks from risk.

“The lesson of this crisis ... is that we cannot make the economy safe by taking functions central to the business of banking, functions necessary to help raise capital for business and help businesses hedge risk, and move them outside banks, and outside the reach of strong regulation,” Geithner says.

Some Senate Democrats considering financial reform have urged that banks be compelled to spin off their swaps desks to reduce the levels of risk they engage in. The banking industry and Republicans oppose doing so.

The Obama administration has not yet taken a public position on whether it feels banks should be compelled to drop their swaps desks.

A swap is a financial contract in which two parties exchange cash flows on debt, currencies, or other assets, usually to hedge risks, and are highly profitable for banks.

Reporting by Glenn Somerville; editing by Chris Wilson