U.S. regulators soon may extend their reach overseas and impose restrictions on foreign governments engaging in some financial transactions in the U.S. Foreign central banks, sovereign-wealth funds and international organizations like the World Bank could be subject to U.S. rules intended to reduce risk in the financial system. As part of last year's financial-regulatory overhaul, regulators gained power to scrutinize and regulate market participants engaging in swap transactions, including those backed by foreign governments. Swaps are a type of derivative used to hedge risk and essentially are agreements between two parties for payments pegged to the performance of stocks, bonds, commodities or indexes. The proposed regulations would require foreign entities to conduct swaps trades on an exchange, potentially post margin and hold enough capital to absorb losses if the trade goes sour.