Administration unveils sweeping plan to overhaul financial regulation system

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.\nThe 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.\nTreasury Secretary Henry Paulson unveiled the 218-page plan in a speech in the Department of Treasury’s ornate Cash Room, declaring, “A strong financial system is vitally important – not for Wall Street, not for bankers, but for working Americans.”\nThe 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.\nMassachusetts 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.\nThe administration said 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.\nAsked 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.”\nThe 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.\nIt 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.\nIt 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.\nIt would propose eliminating the Office of Thrift Supervision and the Commodity Futures Trading Commission, merging their functions into other agencies.\nIt 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.\nPaulson 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.\nPaulson rejected Democratic charges that it was lax regulation of mortgage brokers and the financial industry that had led to the current problems.\n“I do not believe it is fair or accurate to blame our regulatory structure for the current market turmoil,” he said. “I am not suggesting that more regulation is the answer or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years.”\nSen. Charles Schumer, D-N.Y., said he strongly disagreed with Paulson. \n“The unregulated corners of our economy did much to contribute to the meltdown in our housing market and the accompanying spillover to our financial markets,” Schumer said in a statement. “The administration’s ‘deregulation-above-all-else’ attitude helped cause the problems we now face.”