In prepared testimony, Mr. Geithner said that gaps and weaknesses in the regulatory framework governing banks and other financial institutions "presented challenges" to the government's ability to monitor and address risky market bets.
One problem, he said, is that no single regulator saw its job as protecting the economy and financial system as a whole.
The administration's plan, which Mr. Geithner outlined Thursday before the Senate Banking Committee, calls for the Federal Reserve to do that job supported by a new council of regulators.
"Every financial crisis of the last generation has sparked some effort at reform. But past efforts have begun too late, after the will to act has subsided," he said in prepared remarks. "We cannot let that happen this time. We may disagree about the details, and we will have to work through those issues. But ordinary Americans have suffered too much; trust in our financial system has been too shaken; our economy has been brought too close to the brink for us to let this moment pass."
A visibly angry Sen. Christopher Dodd (D., Conn.) had a simple message for financial firms on Thursday: You oppose the creation of a new consumer protection agency at your own risk.
Sen. Dodd, who chairs the Senate Banking Committee and will be the chamber's leader on regulatory reform efforts, said he was "upset" by media reports that financial-industry groups are gearing up to oppose the Obama administration's proposal to create an agency to protect consumers from abusive financial products.
"The very people who created the damn mess are the ones" now saying they will oppose sensible changes, he said. "That's not the place to start."
At the hearing, Mr. Geither said the Federal Reserve is best suited to become a super-regulator that would oversee financial firms so big and influential that their failure could topple the economy.
Some lawmakers want to give the job to a council of regulators. The administration has proposed creating such a group, but says it wouldn't be an effective "first responder" in a financial emergency. "You don't convene a committee to put out a fire," he said.
Democratic leaders have committed to enacting the regulatory revision by the end of the year.
"We have to evaluate it, weigh it, slow it down and make sure we do it right," said Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee. "Because if we don't, we will pay dearly."
The proposal is aimed at filling in regulatory gaps and increasing oversight of the financial markets to prevent another economic calamity.
"We don't want to stifle innovation," said President Barack Obama in a speech Wednesday.
"But I'm convinced that by setting out clear rules of the road and ensuring transparency and fair dealings, we will actually promote a more vibrant market," he added.
Mr. Obama wants to empower the Federal Reserve to oversee the largest and most influential financial firms. He also wants to create a council of federal regulators, chaired by the treasury secretary, to monitor risk across the broader market.
A new consumer protection agency would be created to prevent deceptive practices by such companies as credit card lenders and mortgage brokers.
In an interview Wednesday with ABC News, Mr. Geithner outlined the three core elements of the package: consumer protections, safeguards against risk-taking by financial institutions, and new federal authority "to better manage ... the potential failure of large institutions."
The proposal was well-received among Democrats on Capitol Hill, who said it would prevent another round of bank bailouts and protect consumers from predatory lending practices.
"We regard this as very pro-market," said Rep. Barney Frank (D., Mass.), who chairs the House Financial Services Committee. "Unless you have investors that are well-protected, you don't have a market."
A swift legislative endorsement of the plan could be difficult. Sen. Dodd (D., Conn.) is leading a major overhaul of the nation's health-care system, while the Senate also faces a debate on whether to confirm Supreme Court nominee Sonia Sotomayor.
In addition to the Senate's packed schedule, several lawmakers, including Sen. Dodd, have questioned whether Mr. Obama's proposal relies too heavily on the Federal Reserve and expressed concern that the Fed, as an independent agency, doesn't answer to Congress.
"It's certainly worthy of a thorough and full-throated debate and discussion as to whether or not that's a better alternative than vesting the Fed," Sen. Dodd told reporters after Obama's speech. "There's not a lot of confidence in the Fed at this point."
Mr. Geithner told reporters at a briefing that the administration had looked at a range of alternatives to giving the Fed expanded powers and had come to the conclusion that "we do not believe there is a plausible alternative."