Treasury Secretary Timothy Geithner has proposed sweeping reforms of the financial regulatory system.

Under the Obama administration’s proposal, the federal government would for the first time have oversight of many complex and previously unregulated financial derivatives, including securities like credit default swaps.

Geithner also recommended that a single federal agency be granted wide authority to monitor risk across all financial markets.

“To address this will require comprehensive reform. Not modest repairs at the margin, but new rules of the game,” Geithner said in his opening remarks to the House Financial Services Committee. “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 structure of our financial system.”

The Treasury Secretary added: “Let me be clear. The days when a major insurance company could bet the house on credit default swaps with no one watching and no credible backing to protect the company or taxpayers must end.”

The proposals address four broad themes: containing systemic risk, protecting consumers and investors, eliminating gaps in the regulatory structure and fostering international coordination.

In his testimony Thursday, Geithner stressed the importance of containing systemic risk and said the new proposals offer six methods for addressing the issue:

  1. A single independent regulator to watch over systemically important firms and the critical payment and settlement systems used by those firms.
  2. Higher standards on capital and risk management for systemically important firms.
  3. Registration of all hedge fund advisers with assets under management above a moderate threshold.
  4. A comprehensive framework of oversight, protections and disclosure for the over-the-counter derivatives market.
  5. New requirements for money market funds to reduce the risk of rapid withdrawals.
  6. A stronger resolution authority to protect against the failure of complex institutions.

Another important aspect of the proposal would allow the federal government to seize control of nonbank institutions when they teeter toward collapse, as AIG did last September.

Treasury Secretary Geithner’s entire testimony can be seen here.