Treasury Secretary Henry Paulson Calls For Closer Investment Bank Regulation
Wednesday, March 26, 2008PAUL KANGAS: If investment banks like Bear Stearns are to have access to taxpayer funds held at the Federal Reserve, Treasury Secretary Henry Paulson says those banks will come under more close regulation. As Darren Gersh reports, Paulson waded into the debate over regulatory reform in a speech in Washington today.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Treasury secretary praised Federal Reserve officials for stepping in to, as he put it, avoid a disorderly wind down of Bear Stearns. Investment banks like Bear Stearns, which back stock and bond offerings, are subject to less regulation than their deposit-taking counterparts. But if those investment banks are going to get cash from the Fed, Paulson said that will have to change.
HENRY PAULSON, TREASURY SECRETARY: Certainly, any regular access to the discount window should involve the same type of regulation and supervision.
GERSH: Paulson promises to release more details of his regulatory recommendations soon. But Barney Frank, the chairman of the House Financial Services Committee, is already pushing for the Fed to gain new and sweeping powers to patrol market risk. That raises concerns among conservatives like former Congressman Richard Baker.
RICHARD BAKER, CEO, MANAGED FUNDS ASSN.: For the government to assume the position of insulating everyone from risk is not a responsible role. That will kill innovation and kill business opportunity.
GERSH: At the American Bankers Association, Wayne Abernathy agrees there is no need for a sweeping regulatory overhaul. The credit crunch was not a regulatory failure, Abernathy says. It was a failure of basic financial wisdom.
WAYNE ABERNATHY, EXEC. VP REGULATION, AMERICAN BANKERS ASSN: Don't invest in something you don't understand. Don't trust the promises made by somebody who doesn't have a stake in the performance and diversify your risk.
GERSH: Some members of Congress think the Fed missed a chance to clamp down on sub-prime abuses. It's also not clear whether the Fed's regulatory record is really much better than anyone else's.
BAKER: I think there would be sufficient discussion on that point to keep Congress busy for quite a while.
GERSH: And since no regulator has covered itself in glory in recent months, banking consultant Bert Ely argues it doesn't make sense to give one the job of overseeing the entire financial system.
BERT ELY, BANKING CONSULTANT, ELY & CO.: I am highly skeptical of an uber-regulator both in terms of the capacity of the uber-regulator to do the job as well as the politics of trying to create an uber-regulator.
GERSH: The Fed's actions in the Bear Stearns unwind are about to get a closer look. In an unusual move, the leaders of the powerful Senate Finance Committee are asking for all the names of all the people involved in the deal as well as all the key documents. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington, DC.
