In his initial remarks, Mr. Geithner told a US House Committee that a simpler system was needed. He said government had not had "adequate tools" to handle the crisis.
New Rules
"These failures have caused a great loss of confidence in the basic fabric of our financial system," Mr. Geithner said in his prepared testimony.
He said that "new rules of the game" were needed to achieve comprehensive reform, rules that "must be simpler and more effectively enforced".
The Treasury Secretary said the financial system "needs to be subject to strong oversight by the government". He called for more openness and transparency. He also talked of "unwise" risk-taking and a failure of "market discipline". "Regulated institutions held too little capital relative to the risks to which they were exposed," he said.
New Framework
Mr
Geithner said: "We need better, smarter, tougher regulation." He outlined five elements of a plan to achieve this:
* Establishing a single entity responsible for stability among major institutions
* Enforcing more conservative capital requirements for financial institutions
* Forcing investment companies of a certain size to register with the Securities and Exchange Commission (SEC), the US financial regulator
* Establishing a framework for derivative markets
* Strengthening requirements for money market funds.
Mr. Geithner said that time was of the essence in implementing these five elements. "We have a moment of opportunity, we need to act," he said.
He also stressed the importance of the international effort to reform the global financial system.
"We will work with the Europeans, we cannot move alone," he said.
However, Mr. Geithner did say there was a limit to how long the US could wait for global co-operation. He said the US had to look after its own interests.
"We cannot wait for consensus with the rest of the world [if that jeopardizes US recovery]," he said.
Questioned as to whether there was an alternative to using taxpayer money to bail out financial institutions, Mr. Geithner reinforced the government's argument that it had no choice.
"There are circumstances where it's cheaper for the taxpayer over time for the government to take action. Letting certain financial institutions fail can cause acute, catastrophic damage [to every US citizen]," he said.