The Obama administration today unveiled a sweeping overhaul of the financial system designed to impose greater regulation on major players like hedge funds. Treasury Secretary Timothy Geithner told lawmakers that the changes are needed to fix the flaws exposed by the current financial crisis, the worst to hit the country in seven decades. The administration’s proposal, which will require congressional approval, would represent a major expansion of federal authority over the financial system. Highlights of the plan include:
—Imposing tougher standards on financial institutions judged to be so big that their failure would represent a risk to the entire system.
—Extending federal regulations for the first time to all trading in financial derivatives, exotic financial instruments such as credit default swaps that were blamed for much of the damage in the meltdown.
—Requiring hedge funds and other private pools of capital, including private equity funds and venture capital funds, to register with the Securities and Exchange Commission if their assets exceed a certain size. The threshold amount has yet to be determined.
—Creating a systemic risk regulator to monitor the biggest institutions. Geithner did not designate where such authority should reside, but the administration is expected to support awarding this power to the Federal Reserve.
