THE OBAMA administration has called for a sweeping overhaul of financial regulation that would bring hedge funds, private equity firms and derivative markets under federal government supervision for the first time.

Treasury secretary Timothy Geithner told the House financial services committee that regulatory changes were essential to restore confidence to the financial markets. “We need much stronger standards for openness, transparency, and plain, common sense language throughout the financial system. And we need strong and uniform supervision for all financial products marketed to consumers and investors, and tough enforcement of the rules to ensure full accountability for those who violate the public trust.”

Mr Geithner’s call came as new figures showed the US economy contracted at an annualised rate of 6.3 per cent in the last quarter of 2008, while the number of people claiming unemployment benefit rose last month by 652,000 to 5.56 million, the highest number since 1967.

There are now almost twice as many Americans claiming unemployment benefit as a year ago, when the figure was 2.8 million. The total number of Americans on the dole is over 7 million if 1.47 million people receiving benefits under an extended unemployment compensation plan approved by Congress last year are included.

Mr Geithner said he would give further details of his regulatory reform proposals within weeks, but indicated there should be one regulatory agency to oversee all major financial institutions.

“We must end the practice of allowing banks and other financial companies to choose their regulator simply by changing their charters; regulators must choose who to regulate,” he said.

The plan would impose tougher standards on institutions judged too big to fail, and require hedge, private equity and venture capital funds to register with the Securities and Exchange Commission if assets exceed a certain size.

“Regulation of a financial system as complex and dynamic as our system is inherently difficult and challenging,” Mr Geithner said. “But that difficulty has been compounded by a US regulatory structure that is unnecessarily complex and fragmented. The complexity has sometimes resulted in a failure to assign clear responsibility for achievement of some public policy objectives, notably for financial stability.”

Mr Geithner’s plan falls short of a European proposal to regulate hedge funds as if they were banks, but he said he would work with other governments to ensure that different international standards were consistent with one another.