"To address this will require comprehensive reform -- not modest repairs at the margin, but new rules of the game," Geithner told the committee. "And the new rules must be simpler and more effectively enforced."
The measures also would give the government greater oversight of financial firms that now operate largely outside of federal scrutiny.
For example, failed mortgage lender Ameriquest Mortgage Co. of Orange, once the nation's biggest subprime lender, did not fall under the jurisdiction of federal banking regulators because it did not take insured deposits. It took a coalition of 49 state attorneys general to sue Ameriquest over predatory lending practices and win a $325-million settlement.
In some ways, Ameriquest was the tip of the iceberg. By imposing tighter regulation on the Wall Street firms that funded lenders like Ameriquest and bundled their loans into now-toxic securities, the Obama administration's plan would aim to reach into such companies and force changes before things get worse.
"It's acknowledging that banks are no longer the only game in town," said Randall S. Kroszner, a University of Chicago economics professor and a former Federal Reserve governor.
"A lot of our regulatory framework was based on the view that the traditional commercial banks are the main source of systemwide risk," Kroszner said. "I think taking a broader perspective and acknowledging that there are many other types of institutions is important."
Among the most controversial provisions could be one that would require hedge funds, private equity firms and other funds that cater to wealthy and institutional investors to register with the SEC.
The agency passed such a rule in 2004, but it was struck down by a federal appeals court two years later. Opponents said it imposed high compliance costs on the funds while doing little to protect investors.
Behind the scenes, some hedge fund managers groused about the plan for broad regulation of their industry. Several trade organizations said there is a need to modernize regulation and limit so-called systemic risk but questioned the need for more rules.
"We believe that private equity investments do not create systemic risk," said the Private Equity Council, which represents leading firms such as Blackstone Group and Carlyle Group.
"Private equity firms invest in companies, not exotic securities, and their investors are long-term investors, eliminating the 'run on the bank' type of risk that helped create the current financial crisis."
