All eyes were on Timothy F. Geithner, the Treasury secretary, who testified Friday about the Obama administration’s proposal to regulate the multitrillion-dollar market for financial derivatives, the hedging instruments that bankrupted the American International Group in September.
But after three hours, many of the hardest questions remained unanswered.
Mr. Geithner vowed that the administration would impose tougher regulations on the freewheeling market for derivatives like credit-default swaps, which insure investors from losses on bond defaults.
He told lawmakers that the plan would require that all “standardized” instruments be traded on a regulated exchange or through a central clearinghouse. Participants would have to disclose more information about their transactions, and they would have to meet strict new capital requirements.
The instruments that caused the greatest disruption last year, credit-default swaps tied to mortgage-backed securities, were traded “over the counter” rather than on exchanges and were almost entirely unregulated. Part of the problem was that many bond insurers, including A.I.G., sold credit-default swaps as a form of insurance with inadequate capital to cover their obligations.
Mr. Geithner said the government would demand higher capital requirements for all the participants. It would allow customized, one-of-a-kind derivatives, but those would be subject to reporting requirements and higher capital requirements than exchange-traded instruments.
But the Treasury secretary shed no new light on how the government would define “standardized” instruments. Supporters of over-the-counter derivatives say they come in infinite variations, because they are often meant to help companies hedge against specific risks.
Mr. Geithner vowed to devise a “broad definition” of standardized instruments, adding that regulators would be required to carefully police any attempts at “spurious customization.”
The Treasury secretary said he wanted to leave many of the details to the actual regulators, rather than spell them out in legislation, warning that an overly specific law could give market participants opportunities to evade the rules.
Mr. Geithner said he opposed banning all credit-default swaps, as proposed by Representative Maxine Waters, Democrat of California. He said such products “provide an important economic function in helping companies and businesses across the country better hedge against risk.”
Similarly, Mr. Geithner said he opposed a ban on holding “naked derivatives,” the practice of buying a derivative without owning the underlying securities. But he said the practices needed comprehensive oversight.
Mr. Geithner did not come close to answering the question at the top of many lawmakers’ minds: jurisdiction. At issue is which agency would oversee the new regulation, and which committees in Congress would draft the legislation.
Until those questions are settled, lawmakers said they could not even begin to write a bill.
The huge turnout reflected the battle over jurisdiction. The hearing was held by both the House Financial Services Committee, which writes legislation for banks and oversees the Securities and Exchange Commission; and the House Agriculture Committee, which has jurisdiction over commodity futures trading and oversees the Commodity Futures Trading Commission.
Lawmakers are pushing the Treasury Department to decide how to divide responsibilities. Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, has asked Mr. Geithner to come up with specific answers by the end of July, but the administration is not expected to produce a detailed proposal until September.
Mr. Geithner alluded to the subterranean wrestling match, describing the choices in Solomonic terms.
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