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"Fed urged to broaden Wall Street oversight" by Bloomberg News | March 27, 2008
WASHINGTON - Treasury Secretary Henry Paulson said the Federal Reserve should broaden its oversight to include Wall Street investment firms in a shake-up of the supervisory system set up during the Great Depression.
In a speech to the US Chamber of Commerce, Paulson praised the Fed's decision last week to lend to securities dealers and said the policy should be reserved for times of market stress.
"Certainly, any regular access to the discount window should involve the same type of regulation and supervision," Paulson said in the remarks yesterday in Washington.
Paulson, who spent three decades on Wall Street, is finishing his yearlong review of how the American financial system is regulated.
He said the Fed-orchestrated purchase of Bear Stearns Cos. by JPMorgan Chase & Co. underscores that "the world has changed," and the roles of investment banks and commercial banks require regulators to "think more broadly about the regulatory and supervisory framework."
The Fed's role in helping to finance the rescue of Bear Stearns and the expansion of the central bank's role as lender of last resort suggest it may gain power at the expense of the Securities and Exchange Commission.
"The Bear Stearns action was a sea change," said Gilbert Schwartz, a former associate general counsel at the Fed, and now a partner at Schwartz & Ballen in Washington. "The Fed should be the umbrella agency for all these institutions. The SEC is not set up to handle this."
As Paulson's speech came to a close, top lawmakers on the Senate Finance Committee disclosed plans to review JPMorgan's purchase of Bear Stearns, including the Fed's investment in illiquid mortgage securities.
Committee chairman Max Baucus, a Montana Democrat, and Iowa Senator Charles Grassley, the panel's top Republican, wrote to the firms' chief executives, as well as Paulson, Fed chairman Ben S. Bernanke, and New York Fed president Timothy Geithner, seeking details on how the buyout was negotiated.
Senate Banking Committee chairman Christopher Dodd said he will hold a hearing next week to probe "serious public policy questions" raised by regulators' role in the sale of Bear Stearns."
