Geithner: Wall Street Profit Doesn't Mean Return to Bad Habits

WASHINGTON -- Treasury Secretary Timothy Geithner said in an interview with the Wall Street Journal that the Obama administration wouldn't allow Wall Street to return to such old habits as taking on excessive risk, and that plans to overhaul financial market regulation were on track.

Geithner pushed back against criticism that Wall Street, which is returning to profitability, is also returning to business as usual.

"I don't think the financial system is reverting to past practice, and we won't let that happen," Geithner told the Journal. "The big banks are running with much less leverage now, much more conservative liquidity cushions, there's been a significant shrinking of their balance sheets, getting rid of bad assets and cleaning up. And the weakest parts of the system don't exist anymore."

Some banks, including those that received government bailout money, are earning record profits, increasing pay and ramping up risk. Goldman Sachs, for instance, recently recorded its most profitable quarter ever and boosted its degree of risk-taking as measured by how much money it could lose in a single day.

Geithner said a functioning and profitable financial system was a "necessary precondition to a stronger economy."

"The consequence of achieving stability is that people can raise money, can raise equity, can borrow more easily at lower rates, that these markets have liquidity again," Geithner said. "The fact that the core parts of the U.S. financial system look like they're profitable is overwhelmingly good."

Still, the administration is concerned about the potential for populist anger, particularly as banks resume paying high salaries and bonuses to executives. Last week, Wells Fargo said it increased base salaries for top executives to get around government rules capping bonuses for firms receiving bailout funds.

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