"Earlier this year, I said if we could not with a straight face say we ended 'too big to fail,' we would have to look at other options," he says. "Based on the totality of reforms we are putting in place, I believe we will meet that test, but to be clear, there is no precise point at which you can prove with certainty that we have done enough."
Mr. Lew's comments come as regulators are scheduled to meet next week to finally approve the Volcker Rule, a cornerstone of the overhaul that tries to stop banks from speculatively trading with depositors' money and other funds. In recent months, the Treasury Department has pressed the five agencies that worked on the rule to finish it before the end of the year.
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The Treasury secretary's comments are likely to add more fuel to the debate over the adequacy of the rules that stem from the Dodd-Frank Act, which Congress passed in 2010.
Critics of the legislation say it does not solve the too-big-to-fail problem, because, they say, it does not directly limit or reduce the size of the nation's largest lenders. To make up for this perceived shortcoming, some Republican and Democratic senators this year introduced two pieces of legislation that they said would be much more likely to constrain the biggest banks.
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Against this background, Mr. Lew's speech gives firm backing to the policies that stem from Dodd-Frank, but it also says officials have to remain vigilant to make sure that the rules work effectively. Additional actions may also be necessary, he says. "If, in the future, we need to take further action, we will not hesitate," he says in the draft of the speech.
Mr. Lew is pushing for new measures to reduce the risks posed by money-market mutual funds. In addition, he argues that vulnerabilities still exist in the short-term debt markets that Wall Street firms tap heavily. The Federal Reserve is expected to propose new measures soon to make these short-term markets more stable. The speech also calls on Congress to provide all regulatory agencies with enough money to enforce the new rules.
Much of the speech, however, was devoted to the progress of financial regulations overseas. Next year, the Treasury expects to focus on working with foreign regulators to devise plans for winding down a large global bank in an orderly way if it gets into trouble.
"The failure to work out such arrangements now could pose a significant future risk to our financial system," Mr. Lew's speech will say.
The Treasury Department also remains concerned about regulatory loopholes in overseas derivatives markets.
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Federal regulators, seeking to rein in risky derivatives trading at big banks overseas, have landed in a turf battle with foreign finance ministers who are vying to limit the reach of American authorities. A deal was struck in July for a joint approach to cross-border trades. But on Wednesday, in a move that underscored the continuing challenge of carrying out Dodd-Frank, Wall Street trade groups filed a lawsuit that challenged cross-border guidelines that American regulators had put in place. Mr. Lew's comments also suggested that the Treasury believes that foreign governments may use trade negotiations as a way to weaken financial regulations. "We will not allow these agreements to serve as an opportunity to water down domestic financial regulatory standards," he says.
In reality, much still needs to be done in the United States. Although the Volcker Rule may be soon be finished, several complex and far-reaching requirements that arose from Dodd-Frank still have not been completed. These include crucial rules on derivatives and mortgage lending.
Mr. Lew said very little about efforts to overhaul housing finance in the United States. The taxpayer still backstops nearly every new mortgage, and the Obama administration has taken few steps to move home loans back into the private sector.
"Significant housing finance reform is still needed to add clarity to the market and attract more private capital," Mr. Lew says.
—By Peter Eavis of The New York Times