31 March 2008

Treasury Blueprint for Stronger Regulatory Structure

“The recommendations should not and will not be implemented until after the present market difficulties are past", said Secretary Paulson in remarks presenting the Blueprint at the Treasury Department. “The idea here was to put forward an aspirational model, which could only be achieved after many years.”

“The tradeoffs of such a significant undertaking should be weighed carefully given these turbulent economic times”, CFTC acting chairman Walt Lukken commented. Referring to the cooperation agreement recently signed by the SEC and the CFTC, he said that “these sorts of agreements should be given time to bear fruit.”

SEC Chairman Cox commented that “the proposed consolidation of responsibility for investor protection and the regulation of financial products deserves serious consideration as a way to better address the realities of today's markets.”

The Blueprint recommends creating a new federal commission for mortgage origination and modernizing the President's Working Group on Financial Markets and clarifying the Federal Reserve's liquidity provisioning.

Intermediate-term recommendations focus on eliminating some of the duplication in our existing regulatory system, but more importantly they offer ways to modernize the regulatory structure for certain financial services sectors, within the current framework. Recommendations include eliminating the thrift charter, creating an optional federal charter for insurance and unifying oversight for futures and securities.

The long-term recommendation is to create 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 with a focus on consumer protection.

The current U.S. regulatory framework for financial services providers includes:

- Five federal depository institution regulators in addition to state-based supervision.

- One federal securities regulator, additional state based supervision of securities firms, and self-regulatory organizations with broad regulatory powers.

- One federal futures regulator.

- Insurance regulation that is almost wholly state-based, with 50+ regulators. This structure also has an international dimension that can be inefficient, costly and harmful to U.S. competitiveness.

Press release

Blueprint

Paulson remarks

Lukken remarks

Cox remarks

Fact sheet

Blueprint Website

© Graham Bishop