The Bush administration has unveiled plans for a sweeping overhaul of U.S. financial regulations that are blamed for allowing the mortgage crisis that has been sending shockwaves through the global economy. VOA's Barry Wood has more from Washington, where the U.S. Treasury Secretary outlined the plan.
Under the proposal presented by Treasury Secretary Henry Paulson, government regulators for the first time would oversee non-bank financial institutions that have become powerful players in global finance.
Paulson said current regulations are inadequate, fragmented and duplicative. Under his proposal, the Federal Reserve would be given new authority over investment banks and more power to clamp down on unscrupulous practices and protect consumers.
"Having one agency responsible for these critically important issues for all financial products should bring greater consistency to regulation where overlapping requirements currently exist," said Henry Paulson.
Paulson said mortgage finance, where significant abuses occurred, has been unevenly regulated with the 50 states having their own rules. He said U.S. leadership in financial services requires broadened, streamlined supervision.
"The premise of our optimal structure is a clarity of mission and objective that will lead to strengthened regulation and improved capital market efficiency," he said.
Paulson said he did not expect the proposals to become law anytime soon.
Opposition Democrats who control both houses of Congress have been cool to some of the reforms. They favor more protection for home buyers and tighter regulation of financial institutions like hedge funds, that put together sometimes risky investment packages.
The ongoing credit crisis in the United States began with several large banks announcing massive losses on securities linked to home mortgage loans. The crisis quickly spread around the world because banks in Europe and Asia had invested heavily in such securities. For several months credit markets have not functioned normally as banks tightened their lending standards and boosted reserves.
To restore confidence and stimulate the economy, the Federal Reserve has been cutting short-term interest rates. Two weeks ago it engineered the rescue of the Bear Stearns investment bank that had teetered on the edge of collapse. The Paulson reforms are a further effort to boost confidence and assure investors that U.S. financial markets are adequately regulated.
