Source: http://www.cnn.com/2008/US/03/28/financial.oversight/index.html
WASHINGTON (CNN) -- The Federal Reserve would have the power to regulate
virtually the entire financial industry under a Treasury Department
proposal to
be announced Monday.
Treasury Secretary Henry Paulson will introduce the proposals in a speech
Monday, a spokeswoman says.
The proposal is part of a sweeping overhaul of the government's regulatory
structure that Treasury Secretary Henry Paulson will propose in a speech
Monday,
said Treasury Department spokeswoman Michele Davis.
"I am not suggesting that more regulation is the answer, or even that more
effective regulation can prevent the periods of financial market stress
that
seem to occur every five to 10 years," Paulson will say, according to a
text of
the speech obtained by The Associated Press.
According to Brookly McLaughlin, another department spokeswoman, Paulson
will
propose these changes:
.. Give the Federal Reserve authority to look at the financial status of
any
institution that could affect market stability;
.. Merge the Securities and Exchange Commission with the Commodity Futures
Trading Commission;
.. Give stock exchanges more room for self-regulation;
.. Consolidate bank supervision into one regulator.
One of the most dramatic changes would extend the powers of the Federal
Reserve
-- designed to regulate the commercial banking industry -- to oversight of
virtually the entire financial industry.
That change would make the Fed the first responder to a potential
financial
crisis. Currently, several agencies and commissions have oversight over
various
parts of the industry, but none has the broad authority.
The proposals have been in the works since June -- two months before the
current
sub-prime mortgage crisis began affecting financial markets, Davis said.
Nevertheless, the proposed change would help the oversight and regulatory
system
catch up with the events of the last two weeks, when the Federal Reserve
intervened to facilitate the sale of failing brokerage Bear Stearns to JP
Morgan
Chase.
The financial industry's initial response was positive.
Tim Ryan, president and CEO of the Securities Industry and Financial
Markets
Association, called Paulson's proposals "a thoughtful and sweeping plan."
"Our present regulatory framework was born of Depression-era events and is
not
well suited for today's environment where billions of dollars race across
the
globe with the click of a mouse," he said.
"That fact, teamed with the current market conditions, result in a
universal
agreement that it is time to modernize and revitalize the current system."
Some of the proposals -- broadening the focus of a presidential working
group on
financial markets and tightening oversight on mortgage originators -- are
classified as short-term recommendations.
Davis said the department does not expect to finish the longer-term
proposals
before President Bush leaves office in January. Instead, she said, Paulson
is
trying to start the process of creating "a better regulatory framework so
we're
in better shape next time" there's a rough patch in the economy.
The banking and financial industry regulation structure has been developed
over
decades, from the establishment of the national bank charter in 1863 to
the
creation of the Federal Reserve system in 1913 to recent changes made in
response to other crises.
The ever-expanding complexities of global markets have largely outgrown
some of
the structure's component parts, creating weaknesses and redundancies.
Nearly all of the proposals will require the approval of Congress, where
Democrats are at work on their own proposals.
Sen. Charles Schumer, D-New York, said that Democrats "agree with large
parts"
of Paulson's plan but think the proposals should go further.
"Very complex financial instruments have evolved in recent years, like
[collateral debt obligations] and credit default swaps, which pose
potential
problems in terms of systemic risk," Schumer said. "The Treasury
Department
should address these issues as well." E-mail to a friend E-mail to a
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Source: http://www.cnn.com/2008/US/03/28/financial.oversight/index.html
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