| WASHINGTON, March 29
WASHINGTON, March 29 Upcoming Treasury
Department proposals to make the Federal Reserve the chief
regulator of U.S. financial markets and give it sweeping new
powers won praise on Saturday from the central bank and the
head of the Securities and Exchange Commission.
"The Treasury's report presents a timely and thoughtful
analysis and is an important first step in the complex task of
modernizing our financial and regulatory architecture. We look
forward to working with the Congress and others to help develop
a policy framework that will enhance financial and economic
stability," a Federal Reserve spokeswoman said.
Treasury Secretary Henry Paulson is expected to unveil a
blueprint on Monday for fixing gaps in the U.S. financial
market regulatory structure that have been exposed by the
ongoing subprime mortgage crisis.
Lax regulation has been widely blamed for permitting a
flood of inadequately documented loans to be made during the
boom years of a U.S. housing market that has since soured and
now threatens to drag the economy into a deep recession.
An executive summary of the Treasury proposals says a
"market stability regulator" is needed and the Fed best fits
that role, suggesting the central bank could use its control
over interest rates as well as its ability to provide market
liquidity to fulfill its functions.
When the current regulatory structure was put into place 75
years ago, "our capital markets were in New York and very few
people were invested and the number of products was limited,"
said David Hirschmann, president of the U.S. Chamber of
Commerce's Center for Capital Markets Competitiveness.
'STEP BACK AND MODERNIZE'
The financial world has changed dramatically since then,
and over the years there has been a tendency to respond to
market crises by adding new layers of regulation, he said.
"It's become clear, I think to all, that the solution at
this point is not to simply layer on more layers of regulation
on a creaky outdated system, but really to step back and
modernize the entire structure," Hirschmann said.
Among its recommendations, Treasury suggests merging the
Securities and Exchange Commission, the U.S. markets watchdog,
with the Commodity Futures Trading Commission that oversees the
activities of the futures market.
The subprime mortgage crisis provides "further evidence, if
more were needed, that financial services regulation in the
United States needs to be better integrated among fewer
agencies, with clearer lines of responsibility," SEC Chairman
Christopher Cox said in a statement.
"Just as systemic risk cannot be neatly parceled along
outdated regulatory lines, the overarching objective of
investor protection can't be fully achieved if it fails to
encompass derivatives, insurance, and new instruments that
straddle today's regulatory divides," Cox said.
But CFTC Commissioner Bart Chilton warned it could be
disastrous to hastily consolidate the CFTC and the SEC into one
agency because of the vastly different approaches they take to
"Self-evaluation and a willingness to adapt is important,
but coming up with the wrong answer is another thing entirely,"
Chilton said. The CFTC has "an entirely different regulatory
approach and the data confirms that it works."
"The SEC has a very proscriptive old-style approach to
government. Putting those two in the same room doesn't solve
any problems. In fact, I think it would create a calamity"
unless Congress takes its time and does a thorough overhaul of
statutes authorizing the two agencies, Chilton said.
(Additional reporting by Glenn Somerville, John Poirier and
Rachelle Younglai; Editing by Xavier Briand)