Time for financial regulatory overhaul?
Treasury chief Paulson issued the most dramatic plan since 1929, which would strengthen Washington's oversight role.
WASHINGTON - The Bush administration yesterday proposed the broadest overhaul of the financial-regulatory system since the stock market crash of 1929 and the Great Depression.
The plan would change how the government regulates businesses from the nation's biggest banks and investment houses to the local insurance agent and mortgage broker.
Treasury Secretary Henry M. Paulson Jr. introduced the 218-page plan in a speech in Treasury's ornate Cash Room, declaring: "A strong financial system is vitally important - not for Wall Street, not for bankers, but for working Americans."
The administration's approach drew criticism from Democrats who said it did not go far enough to deal with abuses in mortgage lending and securities trading the current credit crisis exposed. Some state officials also were critical.
Massachusetts Secretary of the Commonwealth William F. Galvin called Paulson's plan "a disastrous backward step that would put the investor in jeopardy" because it would preempt state regulation of securities and insurance.
The plan, which would require congressional approval for its biggest changes, seeks to trim a hodgepodge of overlapping jurisdictions that date back to the Civil War.
It would give the Federal Reserve more power to protect the stability of the entire financial system while merging day-to-day bank supervision into one agency, down from five now.
It also would create one superagency in charge of business conduct and consumer protection, performing many of the functions of the current Securities and Exchange Commission.
It would propose eliminating the Office of Thrift Supervision and the Commodity Futures Trading Commission, merging their functions into other agencies.
The head of the commodity trading commission raised concerns about the plan. Acting Chairman Walt Lukken said merging the SEC and his agency could make "the U.S. futures industry less competitive globally" unless differences in the laws governing the sales of securities and futures contracts were resolved.
The Paulson plan would ask Congress to establish a federal Mortgage Origination Commission to set recommended minimum licensing standards for mortgage brokers, many of whom now operate outside of federal regulation, and it would take a first step toward federal regulation of the insurance industry by asking Congress to establish an Office of Insurance Oversight inside the Treasury Department.
Paulson acknowledged that most of the changes would not occur until after a long debate in Congress, leaving it to the next administration to deal with the biggest changes proposed. He also said the Bush administration's focus would remain on getting through the current credit crisis.
Paulson rejected Democratic charges that lax regulation of mortgage brokers and the financial industry had led to the current problems.
Banking groups raised objections to the plan while other groups expressed approval.
"Dismantling the thrift charter and crippling state banking charters will weaken banking in America," said Edward Yingling, president of the American Bankers Association.
Tim Ryan, head of the Securities Industry and Financial Markets Association, which represents more than 650 securities firms, banks and asset managers, praised the proposal and said there was widespread agreement on the need for modernization.
Frank Keating, president of the American Council of Life Insurers, praised the insurance proposals, but Dan Mica, president of the Credit Union National Association, said his group was "astonished and angered" by the plan to abolish a separate federal regulator for credit unions. He said the move would "essentially turn credit unions into banks."