This afternoon the leaders of the mutual fund industry made their annual trek to Washington for the Investment Company Institute's annual General Membership Meeting. This afternoon's highlight was a keynote interview between ICI president and CEO Paul Schott Stevens and U.S. Treasury Secretary Timothy Geithner.

Before Geithner took the stage, T. Rowe Price chairman Edward Bernard set out the themes that will certainly play front and center during the next two days of the meeting of some 1,200 mutual fund industry insiders and leaders. Foremost among those themes was the need for fund firms to continue to encourage people to save and then to invest those savings. He added that fund firms also need to demonstrate to policymakers that the tax incentives for 401(k) plans and IRAs make the country stronger.

Bernard also pointed out that those Americans born in the 1970s -- today's thirty somethings -- are investing a smaller proportion of their savings into stocks than any generation since the Great Depression.

Geithner outlined three major issues challenging the Treasury at this time, including: creating jobs and growth, repairing the nation's financial infrastructure and finding a way to reduce the budget deficit and make the national debt fall as a share of the economy.

In response to a question posed by Stevens, Geithner told the audience that it is in the interest of this nation that investors in China, India and other nations have access to the services offered by American financial services companies. Stevens had earlier pointed out that Geithner played a lead role in negotiating the deeper entry by U.S. asset managers in Japan in the 1990s.

"We in this industry thank you for that effort," Stevens said.

Geithner also touched on the issue of how financial institutions will be overseen in the future. Rather than debate whether firms should be regulated broadly -- a definition that some worry could bring asset managers under the same constraints as the money center banks -- or narrowly (just banks), he suggested that the issue be looked at by the leverage carried by an institution and the ability for it to harm the financial system.

He also pointed out that institutions adapt to regulations. Overnight there were institutions that were banks rechartering as thrifts because thrifts faced lesser regulation, Geithner explained.

The institutions that have these special characteristics are fundamentally banks and their leverage must be regulated, he added. One audience member from a very large money manager took that as a good sign that would exclude money market funds from this special regulation, since by definition they don't include leverage.

When Stevens steered the conversation to money market funds, Geithner praised the "careful and thoughtful" job of bringing more resilience to money funds without depriving investors of the benefits money funds bring to the public.

Regulators want to do things right and bring clarity to these rules, he elaborated. He added that policymakers need to understand the technicalities of the changes at a specific level to avoid unforeseen effects in the market and that SEC chair Mary Shapiro is doing a good job. 

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