The Obama administration is proposing an extensive overhaul of financial regulations in an effort to prevent a repeat of the banking crisis last fall that toppled once-mighty institutions and wiped out trillions of dollars in investor wealth.
Officials said the administration will seek to regulate the market for credit default swaps and other types of derivatives and require hedge funds to register with the Securities and Exchange Commission.
Treasury Secretary Timothy Geithner was scheduled to outline the proposals in testimony Thursday before the House Financial Services Committee.
Administration officials provided details of the administration's plan before the testimony only on condition of anonymity.
The program the administration was presenting to Congress will also include a recommendation for creation of a systemic risk regulator, possibly at the Federal Reserve, to monitor risks to the entire system.
The plan also includes a measure that Geithner and Federal Reserve Chairman Ben Bernanke discussed before the committee on Tuesday to give the administration expanded powers to take over major nonbank financial institutions, such as insurance companies and hedge funds that were teetering on the brink of collapse.
That power was aimed at preventing a repeat of the problems surrounding insurance giant American International Group Inc., which sparked a furor last week when it was revealed the company had distributed $165 million in bonuses to employees of its financial products group. The unit specialized in trading credit default swaps, the instruments that drove the company to near-collapse last fall.
The administration, pushing Congress to act quickly on its reform agenda, sent Congress a 61-page bill dealing with the expanded powers to seize control of nonbank institutions late Wednesday. The House Financial Services Committee, chaired by Rep. Barney Frank, D-Mass., has indicated it could move on the measure as early as next week.
However, it was unclear how fast the rest of the financial reform agenda might move through Congress. Geithner was providing only a broad outline of the other proposals, with many thorny details remaining to be worked out.
The outline of the regulatory reform was being unveiled a week before President Barack Obama was scheduled to meet for discussions among the Group of 20 major industrialized and developing countries in London to assess what needs to be done to deal with the global financial crisis.
While the administration is pushing other nations to follow the U.S. lead in putting together sizable economic stimulus programs to jump-start global growth, many in Europe are resisting those calls and arguing that the United States needs to do more to toughen financial regulations. They believe the current troubles can be traced to lax regulation in the United States in such key areas as hedge funds and credit default swaps.
Requiring hedge funds to register would open their books to inspection by regulators. The SEC sought that authority several years ago but was stymied by a federal appeals court in 2006.
Hedge funds have grown explosively in recent years while operating secretively. They have lured an increasing number of ordinary investors, pension funds and university endowments -- meaning millions of people now unwittingly invest in hedge funds indirectly.
By Martin Crutsinger(AP)
