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Broad New Oversights Pitched for Ailing Financial Systems

In the wake of the subprime mortgage crash and the bailout of a prominent U.S. investment firm, Treasury Secretary Henry Paulson on Monday outlined an administration proposal for increasing the regulation of financial institutions and markets. A Treasury official and other financial experts discuss the proposed changes.

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  • GWEN IFILL:

    Now, the government’s proposal for revamping the way the financial system is regulated. Jeffrey Brown has the story.

  • JEFFREY BROWN:

    In proposing the broad overhaul of the federal government’s financial regulatory system, Treasury Secretary Paulson said it was not a direct response to the current downturn and credit crisis.

  • HENRY PAULSON, U.S. Treasury Secretary:

    Some may view these recommendations as a response to the circumstances of the day. Yet that is not how they are intended.

  • JEFFREY BROWN:

    But the sweeping plan does seek to reorganize over the short and long term the ways in which the federal government oversees many sectors of the financial world that have been in turmoil in recent months.

  • HENRY PAULSON:

    This model would have three regulators: a regulator focused on market stability across the entire financial sector; a regulator focused on safety and soundness of those institutions supported by a federal guarantee; and a regulator focused on protecting consumers and investors.

  • JEFFREY BROWN:

    Under the plan, the Federal Reserve will have new oversight to ensure market stability. It would watch for threats to the financial system from mortgage lenders, insurance companies, investment banks, and hedge funds, in addition to the more traditional banks, which it already oversees.

  • HENRY PAULSON:

    Our second regulator combines all federal bank charters into one charter and consolidates all federal bank regulators into a single prudential regulator.

  • JEFFREY BROWN:

    This regulator would oversee businesses that have government guarantees behind them, such as savings and loans and federally chartered banks. It would take over responsibilities now held by the Office of Thrift Supervision and other agencies.

    A third regulator would be aimed at protecting consumers and investors, merging responsibilities of several agencies, including the Securities and Exchange Commission and the Commodity Futures Trading Commission.

    The plan also envisions establishing a Federal Mortgage Origination Commission that would set broad standards for mortgage-lending, one major fault line in the current downturn.

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