On Wednesday 13, Treasury Secretary Timothy Geithner unveiled a sweeping plan to regulate over-the-counter derivatives in a bid to better control an opaque market that has been seen as a major cause of the financial crisis.
The administration has urged Congress to move quickly on legislation that will lead to federal oversight of many kinds of complex financial instruments, such as credit default swaps, the insurance contracts that almost brought American International Group to its knees.
It is hoped the proposed legislation will increase transparency and reduce risk in a market valued at more than $680,000bn but which has been largely unregulated. At a press briefing, Mr Geithner said the measure should require swaps and other types of derivatives to be traded on exchanges or clearinghouses and backed by capital reserves, similar to the provisions that banks must set aside in case a borrower defaults on a loan.
Together, the rules could make it more expensive for issuers, dealers and buyers alike to participate in the derivatives markets.
The plan attempts to reverse the deregulation ushered in by the 2000 Commodity Futures Modernisation Act, then backed by Alan Greenspan, chairman of the Federal Reserve, and Larry Summers, then Treasury secretary and now Mr Obama's chief economic advisor.
"We need better broader authority, better information, and we need a better commitment of supervisory authorities to enforce those laws. Central clearers will be required to produce publicly available data on trading volumes under the plan, and reveal to regulators the trades of individual counterparties," said Mr Geithner.
Mary Schapiro, head of the Securities and Exchange Commission, said there was "a widespread agreement that OTC derivatives, particularly credit default swaps, have contributed greatly to the financial mess that we are cleaning up today."
