Treasury Secretary Tim Geithner plans to make the case for the regulatory reform agenda in testimony before Congress this morning (Thursday), where he is expected to propose sweeping changes in the rules of how the government oversees risk-taking in financial markets, attempting this way to break from the mentality in which the government simply stood back from financial markets and allowed all major players to decide how much risk to take in the pursuit of profit. He is also expected to be pushing for setting tougher conditions on how big companies manage their finances as well as tighter controls on some hedge funds and money-market mutual funds. Most of these initiatives however, would require legislation.

Geithner’s focus will be on changes that he believes are necessary to contain “systemic” risks to the economy…The Treasury Chief is also expected to call for a strict and consistent set of regulations for large firms, as well as more power for the government to monitor emerging risks to the economy. The new rules will likely require financial institutions to hold more capital as a buffer against losses and will bolster risk-management standards.

Mr. Geithner is also expected to call today for changes in rules governing how banks conserve cash to cover losses, with the goal of allowing them to set aside more when times are good. He also will call for a review of “fair value” accounting rules that require banks to take losses when the price of their assets falls.

All told, the proposals would mean significant expansions of power for the Treasury, Federal Reserve and other regulators. [via WSJ]