The Treasury Department Secretary Timothy Geithner on March 26 outlined the first of four steps in the Obama administration's comprehensive plan to reform the basic framework for regulating the nation's financial markets. The four broad components of the administration's reform plan are: systemic risk; consumer and investor protection; eliminating regulatory gaps; and international coordination.

To address systemic risk, the plan would establish a single, independent regulator charged with overseeing the stability of major institutions and critical payment and settlement systems. The systemic regulator would set more conservative capital requirements for the largest banks and bank holding companies as well as any financial institution deemed to be systemically important.

The administration's plan would significantly add to the Securities and Exchange Commission's regulatory powers by requiring all hedge funds, private equity funds and venture capital funds above a certain size to register with the SEC. Details of the assets under management threshold that would bring private funds into the SEC fold will be worked out by Congress.

Under the plan, all funds advised by an SEC-registered investment adviser would be subject to investor and counterparty disclosure requirements and other regulatory reporting requirements. This information would help determine if the fund is so large or highly leveraged that it poses a threat to overall financial stability. Funds that could pose a systemic threat would be subject to the same prudential capital and risk management standards that would govern the other large firms overseen by the risk regulator.

The plan also directs the SEC to strengthen the regulatory framework around money market funds to reduce the credit and liquidity risk profile of individual funds and to make the industry as a whole less susceptible to runs.

The plan would give the government the ability to regulate the markets for credit default swaps and over-the-counter derivatives for the first time. It would subject all dealers in OTC derivative markets to the same regulatory and supervisory regime as systemically important firms; force all standardized OTC derivative contracts to be cleared through central counterparties; and encourage greater use of exchange traded instruments.

Finally, Geithner submitted draft legislation to the House Financial Services Committee that would establish a resolution authority to avoid the disorderly liquidation of any nonbank financial firm - such as bank and thrift holding companies and holding companies that control broker-dealers, insurance companies, and futures commission merchants - whose failure would have serious adverse effects on the financial system or the U.S. economy.