The Big Story: Geithner Outlines Sweeping New Regulatory Program for Financial Services Industry

Geithner Calls for Major Overhaul of Financial Rules, New York Times:

The Treasury secretary, Timothy F. Geithner, outlined the plan Thursday before the House Financial Services Committee, where he got a decidedly mixed reception. He said the changes were needed to fix a badly flawed system that was exposed by the current financial crisis. Mr. Geithner, in his opening statement, called for “comprehensive reform. Not modest repairs at the margin, but new rules of the game.”

“Very complex, very consequential, very difficult” Mr. Geithner called the changes that he said were necessary, and the sooner the better.

Included in the plan would be the establishment of one single agency “with responsibility for systemic stability over the major institutions and critical payment and settlement systems and activities.”

Geithner Calls for ‘New Rules of Game,’ Bloomberg

“We have a moment of opportunity now” and “we need to act,” Geithner said. He also called for new standards for executive compensation practices “across all financial firms.”

The administration’s regulatory framework would make it mandatory for large hedge funds, private-equity firms and venture-capital funds to register with the Securities and Exchange Commission, subjecting them to new disclosure requirements and inspections by the agency’s staff. The SEC would be able to refer those firms to the systemic regulator, which could order them to raise capital or curtail borrowing.

The strategy also would require derivatives to be traded through central clearinghouses. And it would add new oversight for money-market mutual funds to reduce the risk of a run on those funds after a shock like last year’s failure of Lehman Brothers Holdings Inc.

The Treasury chief also said regulators should consider new rules requiring banks to set aside extra reserves during boom times to build up a cushion for economic slumps.