By Steven K. Beckner

PARIS (MNI) – Treasury Secretary Timothy Geithner was upbeat about
the U.S. and global economies ahead of a meeting of the Group of 20
finance ministers and central bankers Friday, but reiterated his call
for a reduction in global trade imbalances.

Geithner said it is important to continue with efforts to increase
capital requirements for the largest, most systemically important banks,
but said they must not be set too high.

The Treasury Secretary also called for an enhanced role for the
International Monetary Fund in a reformed international monetary system.
He was participating in an arm chair exchange with former IMF managing
director Jacques de Larosiere at a conference on “Global Imbalances and
Financial Stability” sponsored by the Bank of France.

Federal Reserve Chairman Ben Bernanke spoke to the conference
earlier and defended the Fed’s accommodative monetary policies against
charges that they are causing “negative spillover” effects for emerging
market countries.

Before heading to a working dinner with Bernanke and their G20
counterparts, Geithner told the conference, “the global economy by
almost every measure is in better shape than it’s been anytime in the
last three years.”

“I think there is justifiable, growing confidence,” he said. “I
would say it’s a wary, measured confidence, but justifiable, growing
confidence in the sustainability of the expansion.”

Geithner added, “You’re seeing the challenges and risks shift. We
have a situation now where much of the emerging world is growing very,
very rapidly. They’re facing the classic challenges of how they make
sure they can use monetary policy to help contain inflation pressures in
those countries.”

In an obvious reference to a proposed expanded bailout fund for
heavily indebted euro zone nations, Geithner said “Europe seems to be
making some progress toward strengthening the financial equipment in
support of reform to help countries in Europe in need of reform manage
through that challenge.”

“We seem to see that happening,” he continued. “I think markets are
showing more confidence, more optimism,” he added, about “the ability of
Europe to address those challenges.”

As for the U.S. economy, Geithner said it “is accelerating again”
and noted that many forecasts call for faster growth this year.

Geithner said “the main challenge we face today is how to sustain
recovery.”

“We’re trying to make sure this basic framework of better financial
oversight reforms is put in place in such a way that will give us a
better balance between efficiency and innovation,” he said, adding, “we
want to make sure we do that on a more uniform basis.”

Geithner said “we’re also trying to build an initial consensus on
long-term reform of international monetary system” and “a more stable,
resilient global economy.”

“We’re at the early stages of trying to set the terms,” he said,
for “the kind of system that has a better balance.” He added there need
to be “norms, standards around things like exchange rate policy in
large, open emerging economies, how to use prudential measures to limit
the risks of capital inflows…how to set incentives to prevent the
reemergence of global imbalances…to make us less prone to financial
crisis in the future, less vulnerable to risks.”

Geithner said the IMF will be “central” to any revamped
international monetary and financial system because it is “an
independent, objective source of assessments.”

“There is no alternative to the IMF for that purpose,” he
continued. “It would be more acceptable and more legitimate than any of
the alternatives.”

While moving toward stronger capital and liquidity requirements,
Geithner said, “we don’t want to leave banks with a huge amount of
uncertainty” about what will be expected of them. He said capital needs
to be high enough so big banks “don’t have to go to taxpayers for
assistance” but not so high as to incentivize them to seek to avoid
capital requirements in other markets or other countries.

“Getting that right is very important,” he added.

Geithner said the system must be designed to allow financial
institutions to fail without too much “collateral damage.”

** Market News International **

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