US Treasury Department secretary Timothy Geithner made his pitch for enhanced regulation of over-the-counter (OTC) derivatives markets to the House Financial Services and Agriculture Committees Friday, calling for legislation that would consolidate regulation and require a central clearing for all standardized derivative trading. Geithner blamed a lack of transparency in the market for OTC derivatives — which in 2008 topped a gross market value of more than $20trn — that let companies like AIG over-extend themselves and sell more credit protection for residential mortgage-backed securities (RMBS) than it could cover. “The lack of transparency in the OTC derivative markets combined with insufficient regulatory policing powers in those markets left our financial system more vulnerable to fraud and potentially to market manipulation,” Geithner said in prepared testimony to the committees. Geithner said the Obama Administration’s proposal would prevent OTC derivative activity from posing risk to the general financial system, make the derivative markets more transparent, prevent market manipulation and provide consumer and investor protections. “The reforms that we propose seek to shift the balance by creating a more resilient financial system that is less prone to periodic crises and credit and asset price bubbles, and better able to manage the risks that are inherent in innovation in a market-oriented financial system,” Geithner said. The secretary’s testimony drew 110 members of Congress and some waited as long as three hours for their five minutes to question Geithner, according to The New York Times. While 117 representatives of Congress sit on the combined committees, the Times called the turnout “extraordinary.” Write to Austin Kilgore.

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