Derivatives and Hedge Fund Regulatory Improvement Act of 2008 - Directs the appropriate federal banking agencies, with respect to the entities under their respective jurisdictions that engage in transactions involving unregistered hedge funds or over-the-counter derivatives, to initiate a coordinated rulemaking to: (1) extend to unregistered hedge funds the requirements governing the safety and soundness of the financial system applicable to mutual funds; (2) provide for the regulation of over-the-counter derivatives that are not traded on a national securities exchange or by a registered securities association (including credit default swaps, interest rate swaps, currency swaps, mortgage-backed securities, asset-backed securities, and collateralized debt obligations); and (3) prohibit insured depository institutions from trading derivatives for their own accounts.
Requires the appropriate federal banking agencies and the Securities and Exchange Commission (SEC) to promulgate rules designed to: (1) avoid systemic risks to the financial markets; (2) ensure safe and sound operation of banks, including mandatory maintenance of sufficient capital levels and limits on aggregate leverage, and restrictions on buying, selling, or entering into derivatives by an insured depository institution for its own account; and (3) provide means to prevent fraudulent, deceptive, or manipulative practices.