US TREASURY secretary Tim Geithner warned overseas markets against undercutting US financial regulations, urging them to avoid following the “tragic” example that the UK set in light-touch oversight.

In outspoken remarks that outlined the US position on a range of international regulatory issues, Mr Geithner called for a global deal on derivatives and endorsed forcing the largest banks to hold more equity capital. But such a surcharge need not be “excessive”.

Mr Geithner said it was essential for Asia to fall into line in imposing tough restrictions on derivatives trading.

Officials said there was concern that Singapore and Hong Kong could try to lure business with softer rules.

Alluding to the painful fallout from the financial crisis, Mr Geithner held up the UK’s past policies as a negative example.

“The United Kingdom’s experiment in a strategy of light-touch regulation to attract business to London away from New York and Frankfurt ended tragically,” he said.

“That should be a cautionary note for other countries deciding whether to try to take advantage of the rise in standards in the US,” he said.

Mr Geithner called for global agreement on how much collateral, or “margin”, to impose on uncleared derivative transactions.

The Group of 20 nations has agreed that standardised over-the-counter derivatives should use clearing houses by the end of 2012 to improve transparency and safety of financial instruments blamed for exacerbating the crisis.

However, there remain differences on what to do with uncleared transactions, with the US proposing to force counterparties to stump up more cash or safe securities against trade – a move fiercely opposed by banks and some large non-financial derivatives users.

Mr Geithner’s call for a common standard for margin – in the same way, he said, as the Basel committee agrees international bank capital rules – comes after warnings from Wall Street banks that business will migrate to Asia.

“Risk in derivatives will become concentrated in those jurisdictions with the least oversight. This is a recipe for another crisis,” Mr Geithner said.

On bank capital rules, he said “a simple common equity surcharge should be applied internationally”.

Mr Geithner’s warning about a race to the bottom came as the IMF backed the UK in a European fight over bank capital rules.

The IMF said European Union members should be allowed to “gold-plate” capital requirements with higher minimums when national circumstances warranted. – (Copyright The Financial Times service)