US Treasury Secretary Henry Paulson on Monday announced a major plan to beat the economic recession that America is passing through these days.
In what is termed as the biggest plan to overhaul the US financial regulatory system since the Great Depression, Paulson said that the first challenge for America will be to arrest the capital market turmoil and housing downturn.
During a speech to announce the Treasury's reform blueprint, he said the current regulatory systems should work "more effectively to promote stable and resilient markets and a more competitive financial services industry."
"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. "With a few exceptions, the recommendations in this blueprint should not and will not be implemented until after the present market difficulties are past."
The short-term recommendations include improvements to regulatory coordination and oversight that regulators can make quickly. The blueprint recommends creating a new federal commission for mortgage origination to protect consumers better. The report also recommends modernizing the President's Working Group on Financial Markets and clarifying the Federal Reserve's liquidity provisioning.
The Mortgage Origination Commission (MOC) "would evaluate, rate and report on each state's adequacy for licensing and regulation of participants in the mortgage origination process," Paulson said.
Mid-term recommendations focus on eliminating some of the duplication in U.S. existing regulatory system, but more importantly they offer ways to modernize the regulatory structure for certain financial services sectors, within the current framework. Recommendations include eliminating the thrift charter, creating an optional federal charter for insurance and unifying oversight for futures and securities.
The long-term recommendation is to create an entirely new regulatory structure using an objectives-based approach for optimal regulation. The structure will consist of a market stability regulator, a prudential regulator and a business conduct regulator with a focus on consumer protection.
Analysts said according to the plan, the US government will merge the Securities and Exchange Commission with the Commodity Futures Trading Commission, bringing oversight of U.S. securities and futures markets under a single regulatory umbrella.
The plan would give Federal Reserve more power to oversee Wall Street securities firms which now have access to the central bank's emergency lending facilities.
"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," said Paulson.
