Personal Finance Advice

Earlier today, Treasury Secretary Henry Paulson released his Blueprint for a Modernized Financial Regulatory Structure, a study that was commissioned back in March of 2007.  The 212 page proposal would overhaul the nation’s banking system and give the Federal Reserve broader regulatory powers.

The report acknowledges the diminished role of the Fed’s discount window lending as a “market stability” tool.  The Fed’s normal purview are commercial banks but in today’s financial markets, regular banks have a much smaller role as credit intermediaries than they used to.

In the current financial crisis, the Fed has had to step in to lend credit to financial institutions that are normally under the regulatory control of the Securities and Exchange Commission.  The proposal would legitimize the actions that the Fed has already taken and broaden it’s lending powers to non Federally Insured Depository Institutions.

The proposal also calls for a modern streamlining of regulatory powers that would eliminate the inefficient overlapping of regulatory control that we currently have.

“Due to it’s sheer dominance in the global capital markets, the U.S. financial services industry for decades has been able to manage the inefficiencies in it’s regulatory structure and still maintain it’s leadership position.”

“The United States can no longer rely on the strength of it’s historical position to retain it’s preeminence in the global markets.”

The Fed would basically become the head of this new regulatory structure and would broaden it’s market stability function in order to better cope with systemic risk.

Many of these regulatory changes will require legislative approval and because this is an election year it is unlikely that any these changes will take place under the current administration.