Treasury Secretary’s Henry Paulson sweeping proposals to overhaul financial regulation announced today in Washington, D.C., would establish more control at the federal level, consolidate some existing agencies, and establish new authorities with greater regulatory teeth over insurance and mortgage origination companies.
Wall Street’s main lobby group, the Securities Industry and Financial Markets Association, embraced Paulson’s proposals. “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,” said Tim Ryan, chief executive of the association. “That fact, teamed with the current market conditions, result in an universal agreement that it is time to modernize and revitalize the current system.”
Paulson proposes combining federal bank and thrift regulators, creating a federal insurance regulator and merging the Securities and Exchange Commission with the Commodities Futures Trade Commission. He also recommends the creation of a Mortgage Origination Commission to oversee the licensing of mortgage lenders.
Key elements of Paulson’s plan:
• Merge the SEC with the CFTC.
Rationale: As financial intermediaries and trading platforms converge and financial products blend insurance, banking, securities and futures into derivatives, this makes sense.
• Establish a new federal regulator to oversee insurance companies.
Rationale: Close regulatory gaps and interagency disputes and allow insurance companies to seek federal rather than state chartering to be oversee by the new authority.
• Establish a federal regulatory commission to enforce new licensing standards for state mortgage companies and oversee the way states regulate mortgage origination and sales.
Rationale: The new commission would lay down licensing standards for state mortgage companies and oversee the way states regulate mortgage origination and sales. Separate proposals to deal with home foreclosures and the current housing market turndown are expected from the Bush administration.