US proposes massive financial regulatory overhaul

April 1st, 2008 - 1:02 am ICT by admin  

(Second Lead)
Washington, March 31 (DPA) The US Federal Reserve would get broad new powers of regulation over financial institutions under a proposal unveiled by Treasury Secretary Henry Paulson Monday, in what would be the largest regulatory overhaul since the Great Depression. The proposal is designed to better respond to market disruptions and was started before the current economic slowdown that began in the housing market and has since spilled into the wider economy.

“Our current regulatory structure was not built to address the modern financial system,” Paulson said in a speech at the Treasury Department in arguing that the depression-era system must be updated.

The administration hopes to consolidate existing regulatory agencies into three bodies that would have oversight over all financial institutions.

The proposal would expand the Fed’s role from implementing monetary policy and providing liquidity to monitoring the broader financial system.

“The Fed would have the authority to go wherever in the system it thinks it needs to go for a deeper look to preserve stability,” Paulson said.

The proposal comes after the central bank took a series of dramatic steps in the past month to bail out financial firms that have reported more than $200 billion in write-downs over mortgage-backed securities.

Paulson’s plan would also merge the chief market regulator, the Securities and Exchange Commission, with the Commodity Futures Trading Commission.

He said the proposals, which require Congress’ approval, should not be implemented until after the turmoil on US markets settles down.

“Our first and most urgent priority is working through this capital market turmoil and housing downturn, and that will be our priority until this situation is resolved,” Paulson said.

“Some may view these recommendations as a response to the circumstances of the day; yet, that is not how they are intended,” he said. “This blueprint addresses complex, long-term issues that should not be decided in the midst of stressful situations and should not be implemented to add greater burden to a market already under strain.”

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