The Bush administration is proposing a sweeping overhaul of the way the government regulates the nation's financial services industry from banks and securities firms to mortgage brokers and insurance companies.
The plan would give major new powers to the Federal Reserve, a 22-page executive summary obtained by The Associated Press showed.
The Fed would be given broad authority to oversee financial market stability, including powers to examine the books of any institution deemed to represent a potential threat to the proper functioning of the overall financial system.
The proposal, which will be outlined tomorrow in a speech by US Treasury Secretary Henry Paulson, is certain to set off heated debate within different sectors of the financial services industry and in Congress, where some Democrats are likely to complain that the proposal does not go far enough to crack down on abuses.
The recommendations are the product of a yearlong review that was begun in an effort to modernize the government's regulatory structure so that the country's financial services industries could better compete in a fast-changing global economy.
The plan also seeks to address problems that have been brought to light in recent months since a severe credit crisis began roiling financial markets last August.
That crisis has already claimed as its biggest victim Bear Stearns, the nation's fifth-largest investment bank, which came to the brink of collapse before its purchase by JP Morgan Chase & Co.
"I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years," Paulson will say in his remarks.
But the plan does seek to address problems highlighted by the current crisis, in which the Fed in an unprecedented move has begun making direct loans to securities firms in an effort to shore up a system badly shaken sour mortgage loans.
The proposal would allow the Fed, in its new role as "market stability regulator," to dispatch examiners to check the books of all segments of the financial services industry.
The administration proposal would also consolidate bank regulation by shutting down the Office of Thrift Supervision and transferring its functions to the Office of the Comptroller of the Currency, which regulates nationally chartered banks.
The role that Federal Reserve Chairman Ben Bernanke and his colleagues have been playing to shore up the financial system would be formalized by giving Fed officials greater power to detect where threats might be lurking.
Senator Charles Schumer, a New York Democrat, said he believed Paulson's plan offered some valid suggestions.
"In broad outlines, we agree with large parts of Secretary Paulson's plan," Schumer, chairman of the Joint Economic Committee, said in a statement.
"He is on the money when he calls for a more unified regulatory structure," he said.
Under Paulson's approach, the long-term goal would be to designate the Fed as market stability regulator and to have a financial regulator that would focus on financial institutions that operate with government guarantees.
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