Geithner Proposes to Reinvent How the Financial World Is Regulated

Following up on his calls on Tuesday for increased financial oversight, Treasury Secretary Timothy Geithner today laid out a program for regulating the system that amounts to a bid to completely transform how the nation oversees Wall Street and investment firms, not to mention the entire financial industry.

At the crux of the program would be the creation of a "single entity" to oversee all of the country's most crucial financial institutions, rather than allow them to choose among various regulators and supervisory procedures, Geithner said before the House Financial Services Committee today. "You can't do this piecemeal," he said. All firms over a certain size would be required to register with the Securities and Exchange Commission and share information with government officials. If the government decided the institutions were so big that their failure would threaten the entire system—as with American International Group in September—then it could take steps to limit their riskier behaviors.

In one of the more surprising moves, the plan would expand the federal government's regulatory authority to cover the market for financial derivatives, along with "private pools" of capital, like hedge funds, venture capital funds, and private equity funds. Those currently are outside the purview of most mechanisms of federal supervision.

And in a nod to the outrage surrounding the $165 million in bonus payments made by AIG last week, something that he discussed in more detail on Tuesday, Geithner also said that federal regulators must issue standards for compensation practices across all financial firms.

Over the past week, Geithner has unveiled a flurry of proposals in an attempt to ensure that a financial crisis on the scale of the current one will not be repeated. On Tuesday, he called on Congress to grant the Treasury Department the power to seize any financial firm, not just banks, whose collapse could threaten the system. And on Monday, he proposed a plan that would enable the department to buy up $1 trillion in toxic assets from banks with the help of private investors.

"We have a moment of opportunity now, and we don't want to waste this opportunity," Geithner said today. "We need to do it carefully, but we need to move."

All of the activity comes just a week before President Barack Obama travels to London to discuss the financial crisis with leaders of the Group of 20. 

• Read more about Geithner's latest gamble.