Treasury to Unveil Regulatory Overhaul

The Treasury Department Monday plans to propose a sweeping plan to revise the nation's financial regulatory system, including giving the Federal Reserve broad authority to ensure the stability of financial markets, according to published media reports.

The plan comes as the financial system is enmeshed in a massive credit crisis triggered by Wall Street's love affair with debt linked to risky subprime mortgages and exacerbated by the explosive growth of largely unregulated financial derivatives.

The Treasury's proposal is likely to come under fire from Democrats and other proponents of even stronger regulation of investment banks and markets for newer financial products. Notably, the Treasury's plan does not propose tighter regulation of markets for hedging risk, like the market for credit default swaps, according to The New York Times, which reported Saturday on the proposal after obtaining a summary of it from the Bush Administration.

The proposal would need to be passed by Congress, and thus is likely to trigger a contentious debate among lawmakers, financial industry representives and regulatory agencies, The New York Times report noted. Democratic lawmakers, led by Sen. Barney Frank (D., Mass.), have already been calling for even greater regulation of investment banks.

The Treasury proposal would give the central bank the authority to scrutinize any financial player that poses a risk to the overall financial system, the Times' report said. But it would not apply the same kind of everyday regulations already governing commercial banks to investment banks, the report added. ...