The US Treasury Department may unveil on Monday fresh plans to tighten rules on financial market players to ward off a future credit market crisis like the one currently threatening to drag the economy into a deep recession.
The department announced on Friday afternoon that Treasury Secretary Henry Paulson will deliver a speech in the ornate Cash Room to "discuss issues relating to financial institutions and financial markets but refused any further details. Industry sources said Paulson may offer a set of recommendations for overhauling the regulation of banks, securities, commodities and insurance.
Several trade groups representing a cross-section of the financial services sector as well as state officials have been invited to attend the Monday speech. After speaking at 10 am EDT, Paulson is scheduled to fly to Beijing and will remain in China until Thursday night.
Treasury has been working for months on what it calls a "regulatory blueprint," even before calls for an overhaul began to intensify in the wake of the subprime mortgage crisis that began to wreak havoc last summer on financial markets.
Some industry sources think Paulson might go as far as advocating merging some of the federal agencies that have sometimes overlapping jurisdiction over portions of financial services industry.
In theory, that could mean merging the Securities and Exchange Commission, the US markets watchdog, with the Commodity Futures Trading Commission, which oversees the activities of futures and options contracts.
Treasury might also call for consolidating the regulation of banks and thrifts by combining the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS). Both are divisions within Treasury.
Besides the OTS and OCC, the Federal Reserve Board and Federal Deposit Insurance Corp have regulatory powers over banks. A source said Treasury had already handed over the blueprint to the Office of Management and Budget for review.
Earlier this week, Paulson suggested that since the Fed had taken the exceptional step of permitting investment banks access to its discount window for loans - the first time it has done so for any financial entities besides commercial banks since the 1930s - it should have some authority over the investment banks.
"Certainly any regular access to the discount window should involve the same type of regulation and supervision," he said in a speech to the US Chamber of Commerce.
Potentially, a blueprint could call for an umbrella charter authority that could be given to the Fed for companies to engage in the business of banking, securities and perhaps insurance. Most of the financial services industry in the United States is regulated by federal authorities except insurance, which the states supervise. For years, big insurance companies, however, have been calling for an optional federal charter.
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