UPDATE 1-Treasury's Ryan-More needed to unlock credit markets

 

By Steven C. Johnson

NEW YORK, Oct 6 (Reuters) - The United States is on the right track to resolving financial market disruption but it will take more action to thaw out frozen credit markets and get banks to lend again, the Treasury's top official for domestic finance said on Monday.

Anthony Ryan, Treasury acting undersecretary for domestic finance, said Congress's passage of a $700 billion rescue package last week was a first step but added that there is "a great deal of work ahead of us."

"While a key can lock a door, there is no single key to unlock our financial markets," he said. "The lock is too complex. A host of complementary actions will be required to open credit markets and restore the flow of capital."

Credit markets around the world have fallen into a virtual permanent freeze, with interbank lending rates for three-month loans of dollars and euros hitting fresh highs on Monday.

The $700 billion Troubled Asset Relief Program, which Congress passed and U.S. President George W. Bush signed into law last week, allows Treasury to buy up bad mortgage debt from banks' balance sheets to get them lending again.

In coming days, Ryan said the Treasury intends to hire experts to design and implement the TARP.

He added that beyond this, some of the actions required for a long-term fix of the financial sector include making regulators more aware of and better able to respond to risks and getting credit ratings agencies to reevaluate the way they analyze credits.

He also called for improved risk management practices by investors and financial institutions and more robust capital and liquidity cushions for banks.

"Well-capitalized and liquid institutions are better prepared to deal with challenges and enhance market confidence," he said, adding that "comprehensive regulatory reform" is needed to restore that confidence.

"Our 21st century global capital markets and financial services industry remans regulated largely by outdated 20th century laws and structures," he said.

A market stability regulator with broad powers to collect information from commercial banks, insurance companies, broker dealers, hedge funds and commodity pool operators, as outlined in a Treasury blueprint earlier this year, could be one way to beef up existing market regulation, Ryan said.

"Policymakers and regulators must remain vigilant, use all available tools and as necessary seek new ones, not merely to address immediate concerns but also to close the rift that was created by the breakdown of robust market and regulatory practices," he said.

He said "market discipline failed us" in the credit crisis but added it is "not the time to point fingers at any one group of market participants. There's enough blame to go around."

But fixing the system means certain financial instruments, structures and institutions won't survive. "When we emerge from the turmoil, we should expect the financial landscape to be quite different," he said.

(Reporting by Steven C. Johnson; Editing by Chizu Nomiyama)