Geithner to warn lawmakers on threats to financial system from Europe, fiscal cliff

Treasury Secretary Timothy Geithner plans to warn House lawmakers that regulators need their help to ensure the financial system is safe from threats posed by Europe and elsewhere.

According to his prepared testimony before the House Financial Services Committee, Geithner will inform lawmakers that the financial system, years after the meltdown, still faces "a challenging and uncertain overall economic environment," and will ask members to help, not hinder, regulatory efforts to implement the Dodd-Frank financial reform law. A copy of Geithner's testimony was obtained by The Hill.

"We need your support to make these rules strong and effective.  And we need your support to make sure the enforcement agencies have the resources they need to prevent fraud, manipulation, and abuse," his testimony states.

Geithner singles out continued debt woes in Europe as the single biggest risk to the nation's economy, and will impress upon lawmakers the need to shore up the financial system to protect the U.S. from the dangers it presents.

"A severe crisis in Europe would necessarily have very substantial, adverse effects on the United States," his testimony states.

Echoing Federal Reserve Chairman Ben Bernanke, Geithner will also cautioned lawmakers on the dangers posed by the coming fiscal cliff. If Congress fails to avert the influx of tax hikes and spending cuts set to take effect at the beginning of 2013, it will make the ongoing slowdown in the U.S. recovery even worse.

"The failure of policy makers to enact reforms in a timely and credible manner will be damaging to future economic growth," Geithner will say. "These potential threats underscore the need for continued progress in repairing the remaining damage from the financial crisis and enacting reforms to make the system stronger for the long run."

In that effort, Geithner will tout the work done by regulators in the two years since Dodd-Frank was enacted, saying that "key elements" of the law will largely be in place by the end of the year.

Geithner's prepared testimony makes no mention of the ongoing scandal over the London Interbank Offered Rate, or Libor. The integrity of that rate, which is set by some of the world's largest banks and serves as benchmark for a slew of lending products, has come into question in recent weeks, and regulators are probing for whether there have been widespread efforts to rig the rate to improve the standing of certain banks.

Geithner is testifying before the panel, and doing the same before the Senate Banking Committee Thursday, in his capacity as head of the Financial Stability Oversight Council, which gathers top financial regulators together to oversee the stability of the financial system. However, he is expected to be pressed by lawmakers on his role in the Libor scandal, dating back to his time heading the New York Federal Reserve Bank before becoming President Obama's chief economic adviser.

Concerns that the Libor may be being manipulated first came to the New York Fed's attention under his watch, and lawmakers earlier this month pressed Bernanke on why the Fed failed to do more on the matter when it first emerged. Both officials have defended the actions of Fed officials, saying the matter was immediately highlighted for the relevant regulators both in the U.S. and Britain.