U.S. Treasury Secretary Timothy Geithner said on Friday he was willing to work with lawmakers on shaping an overhaul of financial regulations but insisted major changes are necessary.

The financial crisis of the past two years show the financial system failed in its most basic responsibility to supply credit and protect consumers and that cannot happen again, he said in prepared testimony for delivery to the U.S. House of Representatives Financial Services Committee.

Geithner said the U.S. economy has endured indiscriminate and unforgiving damage as a result of the crisis, from people losing their jobs and homes to businesses shutting down, banks closing and many markets breaking down as credit suppliers.

He said reforms proposed by the Obama administration -- most of which have already been delivered to Congress but still must be put into final legislative shape -- were vital to bring banks and other financial-market participants under tighter control.

Wall Street firms were blamed for shopping for easy regulation in the past and for mounting major lobby efforts on Capitol Hill to evade regulation -- practices that the administration says its proposals would help to stop.

They would substantially alter the ability of financial institutions to escape regulation, to choose which regulator suits them best, to shape the content of future regulation and to continue the financial practices that were lucrative for parts of the industry for a time, but that ultimately proved so damaging, Geithner said.

Already, many Wall Street bankers are trying to soften some of the proposals including one for a Consumer Financial Protection Agency, something that Geithner urged lawmakers to back.

He noted that many non-banks like mortgage brokers and independent mortgage companies, consumer credit companies and payday loan operations are currently able to operate with no federal supervision whatever.

He said that having one agency to look after consumer interests in their dealings with not only banks but also non-bank financial firms would help to block banks from trying to seek out the weakest regulator and delaying compliance with rules.

Geithner cited the example of multiple agencies having some say over regulation of issuance of so-called subprime mortgages -- loans issued to less creditworthy customers -- that still are failing in large numbers and were a significant factor in the current financial crisis.

Because banks and mortgage brokers issued many of these loans without adequately ensuring that borrowers could keep up payments, many subprime mortgages have gone into arrears and helped push foreclosures to higher and higher levels.

It took the federal banking agencies until June 2007 to reach final consensus on supervisory guidance imposing even general standards on subprime mortgages, Geithner said, adding By then it was too late.

(Reporting by Glenn Somerville)

Timothy geithner