Treasury Secretary Timothy Geithner said on Sunday that proposals to more tightly regulate the financial sector are not a threat and will ultimately be a benefit to banks by making them more credible.

Interviewed on CNN's GPS program, Geithner said the financial crisis had exposed the degree to which banks had strayed from their traditional mission of channeling Americans' savings into growing businesses.

When trouble developed because of excessive risk-taking, customers suddenly went from banks falling all over themselves to lend them money at unrealistic rates, to credit drying up in a heartbeat, he noted.

That system didn't work so good for our country, Geithner said. That's why I think these reforms are not just so important for future growth, but they'll be better for the overall public interest and (for) having a strong, stable institution.

He acknowledged there was staunch opposition from some firms on Wall Street that fear some of their trading and other activities might be curbed, but said it will not stop the reform drive.

The U.S. House of Representatives passed a package of financial reform proposals late last year and the Senate is due to vote on Monday whether to start working on its own sweeping set of proposals this week.

Geithner said the fact that so many firms had to be bailed out at taxpayers' expense demonstrates the flaws of the current regulatory system and underlined why it had to be changed.

We're not going to support a bill that is weakened by big exemptions that leave this system in place, because that would be irresponsible for the country, Geithner said.

(Reporting by Glenn Somerville; Editing by Maureen Bavdek)

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