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Treasury Head Proposes Tough Regulation of Big US Financial Institutions

U.S. Treasury Secretary Tim Geithner says he will propose tougher regulations in the coming weeks of non-bank institutions that contributed to the global financial crisis. He says one proposal calls for such companies to pay into a fund that would cover the cost of saving them from collapse.

Geithner said the plan aims to constrain the riskier activities of large insurance and investment companies by requiring them to hold more capital and less debt.

He says the administration also wants a new law to force the institutions to pay into a government fund that would cover their losses if they fail in the future. "Our judgment is it needs to be a separate solution where the burdens of funding are borne by those larger institutions at a level proportionate to their size and the risk they present," he said.

Geithner told a gathering of the Independent Community Bankers of America that small banks and American taxpayers should not have to bail out big companies that take irresponsible risks.

He also asked Congress to support regulation of the market for derivatives, complex instruments that contributed to the downfall of insurance giant AIG. He called for creating an electronic system that would track the buying and selling of such investments.

The treasury secretary said another goal of the administration is to simplify the U.S. regulatory system, which has hundreds of agencies.

Geithner also told the bankers that the U.S. financial system as a whole needs more restructuring. But, he said a substantial part of that adjustment is now complete as a result of government efforts to stabilize the housing market and keep large banks afloat. "The financial system is starting to heal. Concern about systemic risk is substantially reduced, and overall lending conditions have begun to improve," he said.

Geithner said the Obama administration also will increase assistance to small U.S. banks by offering them bailout funds that are repaid by the large banks.