Updated from 2:56 p.m. EDT

Financial stocks were mixed in trading Thursday, as Treasury Secretary Timothy Geithner testified on Capitol Hill about the need for an overhaul of the financial regulation system.

Geithner, in testimony to the House Financial Services Committee, said the Obama administration will seek to regulate the market for credit default swaps and other types of derivatives and require hedge funds to register with the Securities and Exchange Commission. The program also includes a recommendation for creation of a systemic risk regulator, possibly at the Federal Reserve, to monitor risks to the entire system, and to allow federal officials to take over major nonbank financial institutions such as insurance companies and hedge funds that teeter on the brink of collapse.

The NYSE Financial Sector Index began the day on a down note, but recovered ending the day up 54.58, or 1.8%, to 3,065.07.

Morgan Stanley ( MS) and its partner Mitsubishi UFJ Financial Group ( MTU) will combine their Japanese brokerage units in order to establish a new securities company. MUFG will own 60% of the new financial firm, while Morgan Stanley will own the remaining 40%. MUFG, Japan's largest banking group, came to the aid of Morgan during the collapse of Lehman Brothers last fall with a $9 billion infusion. Shares of Morgan Stanley closed down 26 cents to $25.65 and MUFJ shares were essentially flat, losing one penny to close at $5.52.

Bank of America ( BAC) reportedly is mulling layoffs as it merges its wealth management group with Merrill Lynch's.

Separately, BofA will also take over the Upromise credit card from Citigroup ( C) beginning next week. Under Citi, the card capped reward benefits at $300 per year, whereas BofA will no longer place a cap on the loyalty rewards. BofA shares fell 12 cents to $7.58, while Citi shares tumbled 14 cents to $2.81.

Electronic transaction service providers and credit card companies, however, were on the rise. American Express ( AXP) jumped 7.23% to $15.13. Discover Financial Services ( DFS) shares ended up 10.36% to sell at $7.14. Visa ( V) shares were up $2.75 or 5.21% to $55.50.

Copyright 2009 TheStreet.com Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed. AP contributed to this report.

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