Geithner to Call for Higher Capital for Systemic Firms

WASHINGTON — Treasury Secretary Tim Geithner is expected to call this morning for increasing capital requirements on all systemically important financial institutions and imposing additional liquidity, counterparty, and credit risk management requirements, according to officials familiar with the testimony.

If a systemic institution's capital level declines, the systemic risk regulator should put in place a prompt-corrective action program, similar to what banks and thrifts face now, Geithner is expected to say.

The Treasury chief is also expected to recommend the regulation of credit default swaps and other over-the-counter derivatives and suggest the Securities and Exchange Commission strengthen its regulation of money market funds to reduce credit and liquidity risk.

Hedge funds above a certain size should also register with the Securities and Exchange Commission, Geithner is expected to say.

Geithner is due to testify this morning in front of the House Financial Services Committee on legislation Treasury offered to lawmakers late Wednesday that would give the Federal Reserve Board oversight powers over systemically large institutions and give resolution authority over such companies to the Federal Deposit Insurance Corp.

Under the bill, the Fed would define which firms are considered a systemic risk, focus on companies' activities, and clarify and strengthen the regulation of the OTC derivatives market.