Wednesday, July 2, 2008
Treasury Secretary Paulson, in a speech in London, refined his vision for a modern U.S. financial regulatory structure, first outlined in the Treasury Dept's Blueprint released in March. Noting that the Bear Stearns collapse illustrated the outdated nature of the U.S. financial structure with separate regulation of commercial and investment banks, the Treasury Secretary called for an expanded role for the Federal Reserve:
First, whether it was Long Term Capital Management in 1998 or Bear Stearns this year, it is clear that Americans have come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk. But, as we noted in our Blueprint, the Fed has neither the clear statutory authority nor the mandate to attempt to anticipate and prevent risks across our entire financial system. Therefore we should consider how most appropriately to give the Federal Reserve the information and authority necessary to play its expected role of market stability regulator. The Fed would need the authority to access necessary information from complex financial institutions -- whether it is a commercial bank, an investment bank, a hedge fund, or another type of financial institution -- and the tools to intervene to mitigate systemic risk in advance of a crisis.
To complement regulatory efforts, he called for "strong market discipline to reinforce the stability of our markets."