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Last week, Henry Paulson, the US Treasury Secretary, released his blueprint for improving America’s financial regulatory structure. In “Blueprint for a Modernized Financial Regulatory Structure” a series of short-, intermediate- and long-term recommendations for reform of the US regulatory structure are presented as part of the US Treasury’s efforts to improve the competitiveness of its capital markets.
"We should and can have a structure that is designed for the world we live in, one that is more flexible, one that can better adapt to change, one that will allow us to more effectively deal with inevitable market disruptions and one that will better protect investors and consumers," said Secretary Paulson. "The challenge is to evolve to a more flexible, efficient and effective regulatory framework – and that is the purpose of this Blueprint."
In the short term, the Blueprint recommends creating a new federal commission for mortgage origination, as well as upgrading the President's Working Group on Financial Markets and clarifying the Federal Reserve's role in liquidity provisioning and allowing it wider powers in looking for systemic risk.
Intermediate term recommendations focus on eliminating the duplication and competition in the US regulatory framework including reducing the power of State regulators. The SEC and the OTS would disappear as independent bodies and the state regulators would be absorbed into a federal body – this last is already causing uproar in America’s strong local lobbying bodies.
The long-term objective is said to be an entirely new regulatory structure using an objectives-based approach for optimal regulation. The structure will consist of a market stability regulator, a prudential regulator and a business conduct regulator.
As examples of inefficiencies, the Blueprint cites 5 federal depository institution regulators in addition to state regulators, one federal securities regulator, multiple state securities regulators plus several self-regulatory organisations, a separate single federal futures regulator as well as 50+ state insurance regulators.
As expected, the Blueprint is being attacked by some as not solving the current crisis, by others as increasing red tape, and yet more who say it is a plot to deregulate Wall Street. Individual regulators have come out against it and academics are saying it is another Sarbox. And will the Blueprint last the election?
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