The country’s financial system needs “substantial reforms” and that was true before the current crisis, New York Federal Reserve Bank president Timothy F. Geithner told the House Financial Services Committee yesterday.

“Looking forward, the United States will have to undertake substantial reforms to the framework of policy, regulation and oversight of the financial system,” Geithner testified, according to text of his remarks released by the Fed. “There was a case for reform before this crisis. The regulatory framework in the United States was designed in a different time for a very different type of financial system than the one we have today. Nonetheless, many observers believed that this framework, although messy and complex, worked reasonably well. It is harder to make that case today.”

While reform will take a while, Geithner said, “the critical imperative today is to help facilitate that adjustment and to cushion its impact on the broader economy. The forces that made the system vulnerable to this crisis took a long time to build up, and the system will need some time to work through their aftermath.”

The financial system has many strengths, he said, and they need to be expanded to make the financial system more resilient to future shocks.

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