"We need to strengthen our system of prudential supervision across the financial sector," he told lawmakers as he unveiled the broad reforms covering banks and other financial firms as well as hedge funds, money market funds and the more complex derivative market.

As part of the comprehensive reform plan, Geithner called for a single regulatory body to regulate "systemically important" institutions and critical payment and settlement systems and activities."

The regulator will impose on them liquidity, counterparty, and credit risk management requirements that are more stringent than for other financial firms.

The government also wanted to establish tighter capital requirements for institutions that posed "potential risk to the stability of the financial system," Geithner said.

The requirements would be designed "to dampen rather than amplify" financial cycles, he told the House financial services panel in his second briefing to lawmakers in three days aimed at devising stiffer rules to prevent another financial turmoil.

A US home mortgage meltdown stemming from trillions of dollars in securities tied to high-risk home loans triggered a financial tsunami across the globe and plunged the world's largest economy into recession in 2007.

Among institutions exposed to the soured securities was US insurance giant American International Group (AIG), which had to be saved from collapse by an unprecedented government bailout of more than 170 billion dolars.

"Let me be clear: the days when a major insurance company could bet the house on credit default swaps with no one watching and no credible backing to protect the company or taxpayers from losses must end," Geithner said.

Under his proposal, the government will for the first time regulate the markets for credit default swaps, a form of insurance against loan defaults at the heart of the financial crisis, and over-the-counter derivatives.

Hedge fund, private equity and venture capital fund advisers would also for the first time have to register with the main financial regulator, the Securities and Exchange Commission (SEC).

This will "provide greater capacity for protecting investors and market integrity," Geithner said.

US law generally does not require hedge funds or other private pools of capital to register with a federal financial regulator, although some funds that trade commodity derivatives must register and many funds register voluntarily.

Geithner said that in the wake of a multibillion dollar scandal involving Wall Street fraudster Bernard Madoff Madoff, "we must close gaps and weaknesses in regulation of investment advisors and the funds they manage."

The usually safe money market, which involves short-term borrowing and lending, including instruments such as Treasury bills, was also not spared from the proposed reform overhaul.

In the wake of top US investment bank Lehman Brothers' bankruptcy in September last year, "we learned that even one of the most stable and least risky investment vehicles -- money market mutual funds -- was not safe from the failure of a systemically important institution," Geithner said.

These funds are already subject to strict regulation and billed as having a stable asset value -- a dollar invested will always return the same amount.

But the government wants the SEC to strengthen the regulatory framework around money market funds in order for them "to reduce the credit and liquidity risk profile" and to make the industry as a whole "less susceptible to runs."

Geithner said comprehensive financial reform was key because the US financial system had "failed in basic fundamental ways."

It "proved too unstable and fragile, subject to significant crises every few years, periodic booms in real estate markets and in credit, followed by busts and contraction."

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