Geithner gets G20 backing for new capital requirements at London meeting

The finance ministers for the world's biggest economies agreed Saturday on a new global financial framework that will require banks to hold more capital.

Treasury Secretary Timothy Geithner praised the agreement, announced at a meeting in London on Saturday of finance ministers for the world's biggest economies. The White House and British leaders had pushed for the new regulations on capital to prevent future financial collapses, while French and German officials argued before the meeting that the focus should be on new limits on executive compensation.

"These are far reaching and comprehensive reforms, because fundamental change is necessary," Geithner said in a statement. "The great failure of regulation was the failure to prevent the build up of excess leverage and risk within and alongside the banking system."

Geithner said countries need to move to implement the framework, which includes principles but not specific levels of capital. The countries aim to have those levels in place by next year, Geithner said.

"Financial activities which present the most risk should have higher capital requirements," he said. "And the major globally active financial institutions, those firms that present the greatest risk of systemic crisis, should be held to more demanding standards."

The agreement comes ahead of the G20 summit in Pittsburgh Sept. 24-25 that will be attended by President Barack Obama and the leaders of the world's biggest economies.

Obama is pushing similar measures in Congress. The White House would also boost the minimum levels of capital for financial firms and would give more power to the Federal Reserve to oversee them. The plan is expected to be considered by lawmakers later this year, after they deal with healthcare reform legislation.

The finance ministers also pledged to sustain stimulus spending "until recovery is secured," the finance ministers said in their statement laying out the framework.

The ministers said that the stimulus measures would be withdrawn through a "transparent and credible process" after the recession.

The record U.S. deficits -- expected to top $1 trillion this year and in 2010 -- have been criticized by officials from China, the United States' largest creditor.

Geithner said that the strategy of spending, undertaken to help boost the economy out of a recession, won't be effective "unless we can make fully credible our commitment to reverse those actions as soon as conditions permit."

"This means our strategies will need to evolve as we move from crisis response to recovery, from rescuing the economy to repairing and rebuilding the foundation for future growth," he added.

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