**US set to ramp up Federal Reserve powers
By David Dieudonne in Washington
March 31, 2008 07:36am
THE US government is set to propose sweeping new oversight powers to the Federal Reserve, including tighter surveillance of financial markets in a bid to avoid calamities like the current "subprime" lending crisis.
The nation's financial regulatory agencies have been accused by experts of failing to recognise rampant excesses in mortgage lending until after they set off what is now seen as the worst American financial crisis in decades.
"With very few exceptions, most of this blueprint should not and will not be implemented until after the present market difficulties are past," Treasury Secretary Henry Paulson said in an interview with the Wall Street Journal.
"But we've got a chance of getting people to look at it more broadly now. In that way, I think the timing is great," he said in its online edition.
Mr Paulson has scheduled a press conference early Tuesday morning (AEDT) at the treasury department where he is expected to unveil the restructuring plan.
According to a summary obtained at the weekend by American media, the Fed will gain the power to investigate any activities of financial institutions that threaten US economic stability, gather information and combat risks to the financial system as a whole.
The proposal is the most ambitious overhaul of the regulatory agencies since the mid-19th century, when the system was gradually put into place after the Civil War, the Journal reported.
The Securities and Exchange Commission (SEC) would lose some of its authority and is likely to be combined with the Commodity Futures Trading Commission that regulates trade in gas, oil and other goods, according to the New York Times.
The report came as new statistics showed US consumer spending stalled in February despite rising incomes as Americans boosted savings amid recession fears.
Last week Mr Paulson called on the Fed to broaden its surveillance of financial institutions, just days after it authorised investment banks -- including Goldman Sachs, Merrill Lynch and Lehman Brothers -- to use emergency measures and borrow at the discount rate normally reserved for commercial banks.
"This optimal financial regulatory model is an aspirational model which can only be achieved after many years," Mr Paulson said in the Journal.
"We have a number of recommendations that are focused in the intermediate term, the two to eight-year timeframe."
In order to tackle the foreclosures crisis at the heart of the latest credit crunch, "the idea is to set up a mortgage origination commission."
Such a commission would "set the minimum standards we all need for education, training, and licensing" finance professionals, some of whom have been suspected of straying from normal market standards.
In addition, "it would let the states continue to be responsible for regulation, but it would evaluate them. It would go in and monitor them and publish findings," he said.
"For states with deficient oversight, I would be wiling to bet people wouldn't want to put those mortgages into securitisations." |
