Most interesting to me is his section on regulating systemic risk -- which is to say, regulating the companies that are "too big to fail."
First, we need to establish a single entity with responsibility for systemic stability over the major institutions and critical payment and settlement systems and activities.Second, we need to establish and enforce substantially more conservative capital requirements for institutions that pose potential risk to the stability of the financial system, that are designed to dampen rather than amplify financial cycles.Third, we should require that leveraged private investment funds with assets under management over a certain threshold register with the SEC to provide greater capacity for protecting investors and market integrity.Fourth, we should establish a comprehensive framework of oversight, protections and disclosure for the OTC derivatives market, moving the standardized parts of those markets to central clearinghouse, and encouraging further use of exchange-traded instruments.Fifth, the SEC should develop strong requirements for money market funds to reduce the risk of rapid withdrawals of funds that could pose greater risks to market functioning.And sixth, we need to establish a stronger resolution mechanism that gives the government tools to protect the financial system and the broader economy from the potential failure of large complex financial institutions.
To put this in terms people are more familiar with: The first principle empowers a single regulator of major firms, the second principle governs leverage, the fourth regulates derivatives and probably puts them on an exchange-trading basis, and the sixth is about the authority to nationalize. Geithner's full testimony is after the jump.
