"I want you to arrange a meeting, with the heads of the Five Families. This war stops now."

On Monday, representatives from each of the remaining 17 families—er, banks—that control the market for credit insurance contracts sat along the perimeter of a long rectangular table at the New York Federal Reserve Bank to tackle problems they face since the Bear Stearns crisis. Their host: Timothy Geithner, the New York Fed president, who has convened meetings with the group since 2005.

Credit derivatives have been described as the fastest-growing financial market—a market for buying and selling the risk that an investment will fail, or default. In the parlance of the Corleones, it's like buying protection.

If a pension fund owns a bond—say, one backed by subprime mortgages—it may try to reduce its risk by purchasing a credit-default swap that pays out if the bond goes bad.

Investment banks like Bear Stearns were active players in the market, and they paid dearly for that error in judgment when the market for mortgage-backed debt bit the dust.

The families, which control 90 percent of the credit derivatives market, will discuss ways to simplify and protect their business. Their market came dangerously close to a meltdown after Bear Stearns, an active trader of credit derivatives, nearly collapsed. (The Federal Reserve, in a still-controversial move, engineered a sale of Bear Stearns to J.P. Morgan Chase.)

The loss of Bear still sends shudders through the market: Who, if anyone, would have made good on Bear's massive credit positions if the bank truly disappeared?

Congress exempted credit derivatives from regulation in 1974, and the industry has grown largely unfettered under self-regulation. At the end of 2007, there were $62.2 trillion outstanding in credit-default swaps, up 81 percent from the end of 2006, according to the International Swaps and Derivatives Association.

Without formal regulation, credit-derivatives players, including all of the major investment banks, meet occasionally to discuss new practices and policies.

At a recent meeting, they banned a dodgy practice of reassigning trades without the approval of the counterparty. This was akin to betting your sister that the Mets will beat the Angels, only to find out that she passed along her side of the bet to an ex-boyfriend doing time in San Quentin.

At the current meeting, participants including JPMorgan Chase and Lehman Brothers pledged to develop a central clearinghouse for credit-derivatives trades, aimed at preventing a panic that could be triggered by the next failure of a major firm.

This could effectively move the credit markets from a largely over-the-counter operation into one resembling an exchange-based system like that for stocks or commodities futures. Instead of trading with a single counterparty, buyers of credit swaps would do business with a middleman who could enforce safeguards to help ensure that the other party keeps its obligation.

They also agreed to to eliminate some the clutter of trades by "netting out" trades on the books of parties, and to simplify the process of settling a credit swap contract in the event of a default using an auction process.

Geithner, who outlined his thoughts in a speech to the Economic Club of New York earlier Monday, said he expects progress within six months.

"These changes to the infrastructure will help improve the system's ability to manage the consequences of failure by a major institution," he said.