The U.S. Treasury has unveiled part one of its plans for regulatory reform in the wake of the financial crisis, focusing on systemic risk and bringing oversight to certain otherwise unregulated activities.

In Congressional testimony Thursday, Treasury Secretary Tim Geithner outlined five major steps it plans to take to reform financial regulation in an effort to mitigate systemic risk; including: the introduction of a single regulator to oversee systemically important firms and plumbing such as payment systems; higher capital requirements; registration requirements for hedge funds; an oversight framework for the over-the-counter derivatives market; and, new requirements for money market funds. Yesterday the Treasury also called for stronger authority to deal with the failure of major financial institutions.

The need to reduce systemic risk is just one of four areas that require major reform, the Treasury noted, adding that it also intends to bring forth proposals dealing with consumer protection, regulatory gaps and improved international coordination, in the coming weeks.

“To address these failures will require comprehensive reform — not modest repairs at the margin, but new rules of the road. The new rules must be simpler and more effectively enforced and produce a more stable system, that protects consumers and investors, that rewards innovation and that is able to adapt and evolve with changes in the financial market,” he said.

Today Geithner focused on systemic risk because “financial stability is critical to economic recovery and growth, and because systemic risk is expected to be a primary focus for discussions at the G20 Leaders’ Meeting in London on April 2”. He said that its plans aim at, “reforming and modernizing our financial regulatory system for the 21st century, providing stronger tools to prevent and manage future crises, and rebuilding confidence in the basic integrity of our financial system – for sophisticated investors and working families with 401(k)s alike.”

IE