Treasury unveils plans for regulatory shake-up

Go to Financial Times original
The Treasury Department on Monday plans to unveil a series of recommendations that would radically reshape the regulation of the US financial services industry, giving broad new powers to the Federal Reserve to tackle systemic risk.

The move comes amid growing pressure in Congress to overhaul financial regulation in the US, after the credit crisis exposed significant lapses in the government’s ability to monitor Wall Street and prevent it from making overly risky bets on mortgages. Some of the largest institutions suffered multi-billion dollar losses, and the Fed this month was forced to take the dramatic step of offering emergency cash to investment banks.

The US Treasury had been working on its “blueprint” for regulatory reform since March 2007, in an effort to bolster US capital markets amid growing competition from overseas. But the continued turmoil in the financial markets added urgency to its efforts, and raised the political stakes. Several powerful Democratic lawmakers, including Barney Frank of Massachusetts and Chuck Schumer of New York, have called for tighter regulation to be imposed on US financial institutions this month.

One of the main features of Treasury’s plan, which however is unlikely to be fully implemented for several years, would give the Fed greater power to regulate financial firms such as investment banks and hedge funds, when their actions could pose a threat to the system. However, the proposal falls short of permanent regulation by the Fed of investment banks such as Goldman Sachs and Merrill Lynch, which some lawmakers have suggested.

more...