U.S.' Geithner seeks clampdown on derivatives dealers

By Rachelle Younglai

WASHINGTON (Reuters) - U.S. Treasury Secretary Timothy Geithner on Friday proposed clamping down on dealers in freewheeling markets for derivatives, the little-understood, complex securities that helped create a crisis in U.S. and world financial markets.

In testimony before two congressional panels that will play a role in writing legislation on derivatives, Geithner set out proposals that would make big dealers like JPMorgan Chase and Goldman Sachs subject to much stronger supervision.

"We propose to require all OTC (over-the-counter) derivatives dealers ... be subject to substantial supervision and regulation, including conservative capital requirements, conservative margin requirements and strong business conduct standards," Geithner said in comments that acknowledged there were few limits in the past.

The Obama administration is trying to bring about a sweeping overhaul of the U.S. financial regulatory system in the wake of a two-year old credit crisis that has hobbled economies worldwide.

ONE PIECE IN A PUZZLE

Its proposals on derivatives are just one small piece of this larger effort. Months of political wrangling lie ahead before anything is put into law.

Derivatives are financial instruments that derive their value from an underlying asset like a Treasury bond, a commodity like oil or copper or a mortgage-backed security.