Supervision, market discipline balance needed: Geithner

By Steven Scheer

JERUSALEM (Reuters) - Major economies, particularly the United States, must balance financial market discipline and supervision better to cushion against future crises, New York Federal Reserve President Timothy Geithner said on Monday.

This meant wide changes to "incentives" particularly for the largest global financial institutions, he said during a Group of 30 meeting in Jerusalem.

"My own sense is that we're going to have to find a better balance between market discipline and supervision, certainly in the United States, but that's a question we're looking at across the major financial centers," he told a news conference.

Geithner declined to comment on U.S. monetary policy but, when asked how the Fed would combat growing inflation risks stemming from soaring food, oil and overall commodity prices, he replied with one word: "Effectively". He declined to elaborate.

Central banks and regulators had made "a very impressive effort" in building an early consensus on changes to help reduce vulnerability and "make the system more resilient in future crises", Geithner said.

"I think that is going to involve a whole range of changes in the incentives we create for financial institutions, particularly the largest global financial institutions," he said.

The United States was going through a "necessary but difficult adjustment process" after a long global economic boom," he said.

"But the circumstances in each country are very different and the policy responses are going to have to be very different even though we face a common challenge in the global inflation dynamics," Geithner said.