NEW YORK (Reuters) - The U.S. Department of Treasury would have final authority for regulating the privately traded derivative markets in the United States under a bill introduced on Wednesday by a group of House Democrats.

Calling itself the New Democrat Coalition, the group proposed to create a new unit within the Treasury to coordinate regulation of the markets with the Securities and Exchange Commission and the Commodity Futures Trading Commission, representatives said on a conference call.

Credit default swaps, a type of derivative used to insure against debt defaults and speculate on a borrower's credit quality, were central to the credit crisis that led to a global economic downturn.

Many of the proposals in the bill, the Derivatives Trading Accountability and Disclosure Act, are similar to regulatory objectives set out by Treasury Secretary Timothy Geithner.

The new Office of Derivatives Supervision in Treasury would harmonize regulations by the SEC and CFTC to ensure rules are consistent for economically equivalent instruments. The office would have the right to veto any rules it views as not meeting that criteria.

Representative Michael McMahon of New York said giving final decision-making power to the Treasury is a means of bringing accountability.

"There were a plethora of independent agencies that could have overseen what was happening last year and the year before and didn't speak to it the way they should have," McMahon, the lead sponsor of the bill, said.

"We think that having the accountability in an agency that the administration is then held accountable for is actually more effective," McMahon said.

Other co-sponsors of the bill include New York Representative Joseph Crowley, who is chairman of the New Democrat Coalition, as well as Representatives Melissa Bean of Illinois and Jim Himes of Connecticut.

SYSTEMIC RISKS

Bringing the derivative markets, estimated to have global volumes of $450 trillion, under the purview of regulators is viewed as key to removing risks in the financial system.

The bill would give the SEC authority over derivatives backed by securities and the CFTC oversight of contracts related to agricultural assets, other commodities and futures.

It would also require that all "standardized" derivatives between major market participants be centrally cleared, and that these may be traded on exchanges.

Trades not placed in central clearing houses must be recorded by a trade depository and would be subject to more stringent capital requirements.

The SEC and CFTC, in coordination with the Treasury, would determine which contracts are required to be centrally cleared.

The bill does not address the issue of so-called "naked" credit default swaps, which other House members including Collin Peterson, chairman of the House Agriculture Committee, have said they want to ban.

A credit default swap is deemed "naked" when a buyer of protection does not also own the debt underlying the CDS.

Some regulators have blamed speculators taking short positions on companies with CDS for inflaming concerns over banks and hastening a run on their assets last year.

Others, however, are concerned placing limits on the CDS trading will reduce the number of players in the market and damage investors' ability to hedge risks.

"The market for risk is very hard to understand, and I'm not sure that either Congress or any other regulatory agency should be qualifying buyers in the derivatives market," said Himes, the Connecticut congressman.

(Reporting by Karen Brettell; Editing by Kenneth Barry)