WASHINGTON (AP) âÄî The Obama administration on Thursday unveiled a sweeping overhaul of the financial system designed to impose greater regulation on major players like hedge funds. Treasury Secretary Timothy Geithner told lawmakers that the changes are needed to fix the flaws exposed by the current financial crisis, the worst to hit the country in seven decades. The goal is to repair a system that has proven “too unstable and fragile,” he said. “Over the past 18 months, we have faced the most severe global financial crisis in generations,” Geithner said in testimony to the House Financial Services Committee. “To address this will require comprehensive reform. Not modest repairs at the margin, but new rules of the game.” The administration’s proposal, which will require congressional approval, would represent a major expansion of federal authority over the financial system. Highlights of the plan include: âÄî Imposing tougher standards on financial institutions judged to be so big that their failure would represent a risk to the entire system. âÄî Extending federal regulations for the first time to all trading in financial derivatives, exotic financial instruments such as credit default swaps that were blamed for much of the damage in the meltdown. âÄî Requiring hedge funds and other private pools of capital, including private equity funds and venture capital funds, to register with the Securities and Exchange Commission if their assets exceed a certain size. The threshold amount has yet to be determined. âÄî Creating a systemic risk regulator to monitor the biggest institutions. Geithner did not designate where such authority should reside, but the administration is expected to support awarding this power to the Federal Reserve. The plan also includes a measure that Geithner and Fed Chairman Ben Bernanke discussed before the committee on Tuesday to give the administration expanded powers to take over major nonbank financial institutions, such as insurance companies and hedge funds that were teetering on the brink of collapse. That power was aimed at preventing a repeat of the problems surrounding insurance giant American International Group Inc., which sparked a furor last week when it was revealed the company had distributed $165 million in bonuses to employees of its financial products group. The unit specialized in trading credit default swaps, the instruments that drove the company to near-collapse last fall. “Let me be clear,” Geithner told the committee. “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 must end.” The administration, pushing for quick action on its reform agenda, sent Congress a 61-page bill dealing with the expanded powers to seize control of nonbank institutions late Wednesday. The House committee, chaired by Rep. Barney Frank, D-Mass., has indicated it could move on the measure as early as next week. Frank said the overhaul should ensure the government has more options and can avoid repeating the unattractive choices it faced last fall of letting Lehman Brothers fail, which sent a shock wave to the entire financial system, and propping up AIG with billions of dollars. “We are looking for an alternative method to avoid those polar extremes,” he said. While many Democratic lawmakers expressed support for Geithner’s proposals, Republicans questioned whether the overhaul would give federal regulators too much power. “Forgive me if I am a skeptic … when I hear that if we only have a systemic regulator it will never happen again,” Rep. Scott Garrett, R-N.J., told Geithner. Sen. Charles Schumer, D-N.Y., a key member of the Senate Banking Committee, generally praised Geithner’s proposal as a “good first outline” suggesting it will undergo extensive changes in Congress, including “some major consolidating and rearranging” of the government agencies that regulate the financial industry. At a Senate Banking Committee hearing, SEC Chairman Mary Schapiro and key senators agreed it could be harmful for any one regulator to become too powerful. “The devil is in the details,” Schapiro said, adding she was concerned that “we don’t create a monolithic entity” that would diminish the role of investor protection. A “college of regulators,” each overseeing different areas of potential risk according to their expertise, would be constructive in the new system, she suggested. Such a regime would be relatively decentralized but more rational than the current patchwork system of financial authorities, which dates to the Civil War, supporters say. Geithner’s plan is silent on whether any consolidation of regulators is needed. It provided only a broad outline on many of the initiatives, leaving many thorny details to be worked out in Congress. Administration officials promised that the remaining issues would be hammered out in consultation with lawmakers with the goal of getting legislation approved as quickly as possible. The proposal on credit default swaps and other derivatives would require the markets on which they are traded to be regulated for the first time, and for the buying and selling of these instruments to be conducted in ways that will foster greater oversight. Credit default swaps, which trade in a $60 trillion global market without government oversight, are contracts to insure against the default of financial instruments like bonds and corporate debt. They played a prominent role in the credit crisis that brought the downfall of investment banking giant Lehman Brothers Holdings Inc. last fall and nearly unraveled AIG, forcing the government to provide more than $180 billion in support. Hedge funds, which hold an estimated $1.5 trillion in assets, operate mostly outside of government supervision. As the market crisis deepened last fall, hedge fund selling was widely cited as one of the reasons for increased volatility that pounded stocks and bonds. Hedge funds also suffered huge losses last year, notably from investments in securities tied to subprime mortgages. The outline of the regulatory reform was unveiled a week before President Barack Obama is scheduled to meet for discussions among the Group of 20 major industrialized and developing countries in London to assess what needs to be done to deal with the global financial crisis. While the administration is pushing other nations to follow the U.S. lead in putting together sizable economic stimulus programs to jump-start global growth, many in Europe are resisting those calls and arguing that the U.S. needs to do more to toughen financial regulations. They believe the current troubles can be traced to lax regulation in the U.S. over such key areas as hedge funds and credit default swaps. Requiring hedge funds to register would open their books to inspection by regulators. The SEC sought that authority several years ago but was stymied by a federal appeals court in 2006. Hedge funds have grown explosively in recent years while operating secretively. They have lured an increasing number of ordinary investors, pension funds and university endowments âÄî meaning millions of people now unwittingly invest in hedge funds indirectly. ___ AP Business Writers Marcy Gordon and Daniel Wagner contributed to this report.