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Geithner to Propose Vast Expansion Of U.S. Oversight of Financial System
FDIC Chairman Sheila Bair, right, has expressed support for Treasury Secretary Tim Geithner's plan to vastly expand the government's authority to regulate companies that pose a risk to the overall economy.
(Mark Lennihan - AP)
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Geithner also plans to call for the SEC to impose tougher standards on money-market mutual funds, investment accounts that appeal to investors by aping the features of checking accounts while offering higher interest rates. He will not make specific suggestions.
SEC chairman Mary Schapiro plans to testify today that the SEC supports both proposals.
The administration's broad determination to regulate the totality of the financial markets also includes a plan to regulate the vast trade in derivatives, complex financial instruments that take their value from the performance of some other asset. Derivatives have become a basic tool of the financial markets, but trading in many variants is not regulated. Credit-default swaps, a major category of unregulated derivatives, played a major role in the collapse of AIG.
Geithner plans to call for the entire industry to be placed under strict regulation, including supervision of dealers in derivatives, mandatory use of central clearinghouses to process trades and uniform trading rules to ensure an orderly marketplace.
The Fed already is moving to improve the plumbing of the financial system, including of the derivatives trade. The administration wants to expand and formalize these efforts.
Senior government officials view these highly technical arrangements as critical to the restoration of a healthy financial system.
Staff writer Zachary A. Goldfarb contributed to this report.
