WASHINGTON — Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and other U.S. regulators will propose tougher scrutiny of banks’ capital in a report on lessons from the mortgage crisis, a government official said.
The results of the review by the President’s Working Group on Financial Markets may be released as soon as today, two officials said on condition of anonymity.
Policymakers have said they aim to address deficiencies in how lenders make loans to homebuyers, then package the mortgages into bonds rated by credit-rating firms and sold by securities companies. Consumer advocates and legislators argue that the system failed to ensure that borrowers could repay the loans and helped deepen a slump that has led to record foreclosures.
“There definitely needs to be broader oversight of the mortgage-lending process,” Paulson said this month.
One official, who read drafts of the report, said it will include proposals to strengthen supervision of banks’ capital, amid concerns that they failed to protect against the risks they took investing in subprime securities.
Banks and securities firms posted more than $188 billion of credit losses since the start of last year as the mortgage meltdown rippled through financial markets. As lenders made it tougher to get loans and home values slid, delinquencies climbed.
Blame for the debacle will be spread among bank supervisors, ratings companies and large banks and securities companies, the official said. Consumer advocates and congressional Democrats have blamed regulators for failing to halt abusive lending practices in the 2004 to 2006 mortgage boom that has now turned to a bust.
Investment banks, including Bear Stearns and Deutsche Bank AG, sold $1.2 trillion of the securities in 2005 and 2006, according to estimates by Brian Bethune, director of financial economics for Global Insight Inc.
