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US to give more powers to the Fed

Latest update : 2008-03-31

The US Treasury is to unveil a plan Monday to prevent calamities like the current mortgage crisis. New oversight powers are expected to be given to the Federal Reserve, including tighter surveillance of financial markets.

US Treasury Secretary Henry Paulson on Monday was to unveil a plan to beef up the Federal Reserve, in the latest US bid to calm economic turmoil stirred up by the "subprime" lending crisis.
The federal government was to propose giving sweeping new oversight powers to the Fed, including tighter surveillance of financial markets in a bid to avoid calamities like the current mortgage chaos.
Darkening the picture, US Housing and Urban Development Secretary Alphonso Jackson was expected to announce his resignation Monday, The Wall Street Journal reported.
Citing people familiar with the matter, the newspaper said the departure will deal a blow to efforts by the administration of President George W. Bush to tackle the housing and mortgage crisis.
US financial regulatory agencies have been accused by experts of failing to recognize 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," Paulson said in an interview with The 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.
Paulson has scheduled a press conference for 10:00 am (1500 GMT) Monday 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.
On Wednesday, Paulson called on the Fed to broaden its surveillance of financial institutions, just days after it authorized 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," 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 willing to bet people wouldn’t want to put those mortgages into securitizations."

Date created : 2008-03-31