The Treasury proposed new measures and rules aimed at preventing future financial crisis. The plan covers four broad areas: systemic risk; consumer and investor protection; closing regulatory gaps; and international coordination.

Large, Systemically Important Firms

The Treasury called for a single independent regulator with broad powers over systemically important firms and critical payment and settlement systems. It did not identify an agency that would take on this role but will work with Congress to define the entity's powers.

The Treasury also will work with Congress to classify large financial firms, deposit-taking or not, that would have to meet higher capital and liquidity standards due to their size and their importance in the overall economy.

In defining these firms' characteristics, Congress and the Treasury will look at the firm's size, its leverage and reliance on short-term funding; its role as a source of credit in the economy and the financial system's dependence on the firm.

These firms would face more conservative capital requirements aimed at allowing them to cope with a "wider range of deeply adverse economic scenarios." They will be subject to stricter liquidity, counterparty and credit risk management requirements.

The systemic risk regulator would get the power to force corrective action when capital levels drop, similar to actions that the Federal Deposit Insurance Corp takes with banks and thrifts.

Accounting

The Treasury will urge revising accounting standards for loan loss reserves to account for losses throughout the business cycle. And it will recommend that fair-value accounting rules be reviewed to reduce their pro-cyclical tendencies, while still providing transparency.

Derivatives

Clarity and more oversight will be recommended by the administration for overnight and short-term lending markets, such as those for tri-party repurchase agreements, and over-the-counter derivatives, officials said.

Hedge Funds

The Treasury will recommend that all advisers to hedge funds, private equity funds and venture capital funds, whose assets under management exceed a not-yet-determined amount, must register with the U.S. Securities and Exchange Commission.

The recommendation will call for funds advised by an SEC-registered investment adviser to heed investor and counterparty disclosure requirements. Reporting would involve information needed to assess whether a fund is so large or highly leveraged that it poses a threat to financial stability.

The SEC would share the reports it gets from funds with the systemic risk regulator, which would decide whether any hedge fund poses a systemic threat and should be subjected to the higher standards for systemically important firms.

Credit Default Swaps

For the first time, under the proposals, the government would regulate markets for credit default swaps and over-the-counter derivatives, officials said.

All dealers in OTC derivative markets would be subjected to oversight as systemically important firms. All standard OTC derivative contracts would have to be cleared through central counterparties, themselves under supervision and oversight.

All non-standardized derivatives contracts would have to report to trade repositories and be subject to record-keeping standards and other standard practice requirements.

Central counterparties and trade repositories would have to disclose aggregate data on trading volumes and positions and make individual counterparty trade and position data available on a confidential basis to appropriate federal regulators.

Money Market Funds

Finally, the Treasury will urge the SEC to strengthen regulations around these funds to reduce risks on individual funds and make the industry less susceptible to "runs" by investors. This action was prompted by last year's incident in which a major fund "broke the buck"-lost money so that the net asset value fell below $1-prompting the Treasury to provide a temporary guarantee program.

Power to Seize Non-Bank Firms

The Treasury is seeking the power to take over large, failing non-bank financial firms to avoid disastrous bankruptcies that could threaten financial stability. These could holding companies for banks, thrifts, broker dealers, insurance companies, and futures firms, among others.

A seizure would require the approval of the Treasury, the Federal Reserve and the FDIC and would be done in consultation with the U.S. president. At that point, the Treasury and FDIC would decide whether to offer financial assistance or put the firm into conservatorship. The assistance could take form of purchases of assets or equity or guaranteeing liabilities, while under conservatorship, the FDIC would take control of the firm and either restructure it or pursue an orderly liquidation.

This would require a new assessment scheme from covered firms to fund the costs of such resolutions. The FDIC's Deposit Insurance Fund would not be used for any such assistance.