White House unveils Wall Street overhaul

updated 3:19 p.m. ET March 31, 2008

WASHINGTON - The Bush administration Monday proposed the most far-ranging overhaul of the financial regulatory system since the stock market crash of 1929 and the ensuing Great Depression.

The plan would change how the government regulates thousands of businesses from the nation’s biggest banks and investment houses down to the local insurance agent and mortgage broker.

Treasury Secretary Henry Paulson unveiled the 218-page plan in a speech in Treasury’s ornate Cash Room, declaring, “A strong financial system is vitally important — not for Wall Street, not for bankers, but for working Americans.”

The administration’s plan drew criticism, however, from Democrats who said it did not go far enough to deal with abuses in mortgage lending and securities trading that were exposed by the current credit crisis. Some state officials criticized what they saw as unwanted federal intrusion on their turf.

Massachusetts Secretary of the Commonwealth William F. Galvin blasted Paulson’s approach as “a disastrous backward step that would put the investor in jeopardy” because it would pre-empt state regulation of securities and insurance.

The administration said that it planned to work with Congress to have constructive conversations, but officials would not predict when any aspects of the proposal could be enacted into law.

Fact file: Financial overhaul The main elements of the Bush administration's plan to overhaul financial regulation: — Expand the role of the President's Working Group on Financial Markets to include the entire financial sector and not just financial markets. — Create a federal commission, the Mortgage Origination Commission, to develop uniform, minimum licensing standards for mortgage market participants. — Close the Office of Thrift Supervision, which regulates thrift institutions, and move those functions to the Office of the Comptroller of the Currency, which regulates banks. — Merge the functions of the Commodity Futures Trading Commission into the Securities and Exchange Commission to create one agency to provide unified oversight of the futures and securities industries. — Establish an Office of National Insurance within the Treasury Department to regulate those in the insurance industry who want to operate under an optional federal charter. — Work to establish as a long-term goal three major regulators: the Federal Reserve as a "market stability regulator"; a "prudential financial regulator" to take over the functions of five separate banking regulators; and a "business conduct regulator" to regulate business conduct and consumer protection. Source: Associated Press

Asked if Bush’s goal was to get the overhaul approved before he leaves office, presidential press secretary Dana Perino told reporters aboard Air Force One, “We’ll have to see. It is a big attempt.”

The plan, which would require congressional approval for its biggest changes, seeks to trim a hodge-podge collection of overlapping jurisdictions that date back to the Civil War.

It would give the Federal Reserve more power to protect the stability of the entire financial system while merging day-to-day bank supervision into one agency, down from five at present.

It also would create one super agency in charge of business conduct and consumer protection, performing many of the functions of the current Securities and Exchange Commission.

It would propose eliminating the Office of Thrift Supervision and the Commodity Futures Trading Commission, merging their functions into other agencies.

The head of the commodity trading commission raised concerns about the plan. CFTC Acting Chairman Walt Lukken said merging the Securities and Exchange Commission and his agency could end up making “the U.S. futures industry less competitive globally” unless differences in the laws governing the sales of securities and futures contracts were resolved.

The Paulson plan would ask Congress to establish a federal Mortgage Origination Commission to set recommended minimum licensing standards for mortgage brokers, many of whom now operate outside of federal regulation, and it would also take a first step toward federal regulation of the insurance industry by asking Congress to establish an Office of Insurance Oversight inside the Treasury Department.

Paulson acknowledged in his remarks that most of the changes will not occur until after a lengthy debate in Congress, leaving it to the next administration to deal with the biggest changes proposed by the report. He also said the Bush administration’s focus would remain on getting through the current severe credit crisis, which has roiled financial markets since last August.

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