Treasury secretary unveils new US financial regulatory blueprint

The treasury secretary Henry Paulson last week (31 March) published his long-awaited shake-up of US financial regulation.

The review – called a “Blueprint for a Modernised Financial Regulatory Structure” – sets out plans for the biggest overhaul of US financial sector regulation since the 1930s.

It is aimed both at bringing the regulation of US financial markets into the 21st century and calming the nerves of the US public in light of the ongoing credit crunch.

Paulson said the US needed a regulatory structure that was more adaptable than the current system, adding that it must be able to deal with “inevitable market disruptions” and protect investors and consumers.

“The challenge is to evolve to a more flexible, efficient and effective regulatory framework, and that is the purpose of this blueprint,” Paulson said. Heading Paulson’s ‘to do’ list is the call for greater powers for the US Federal Reserve. The treasury secretary argued that the bank should be responsible for the regulation of a wider range of financial institutions – including hedge funds and insurance companies – and become the body responsible for overseeing market stability.

Paulson also called for the current Wall Street regulator, the Securities and Exchange Commission, to be merged with the Commodity ;Futures Trading Commission.

The plans received a cautious welcome from lawyers in New York. One called Paulson’s plans for light touch regulatory reform ;”good ;for ;the markets, good for lawyers, good for everybody”.

While the consensus was that it was too early to predict accurately, most lawyers also claimed that the plans represented a potential bonanza for firms with strong bank regulatory practices.