WASHINGTON — If big Wall Street investment houses are allowed to run to the Federal Reserve for emergency lending, they must face stepped-up regulation, Treasury Secretary Henry Paulson declared Wednesday.
The demise of once- mighty Bear Stearns proves “the world has changed,” underscoring a need for the government to adapt too, he said.
The Bush administration will soon put forth an oversight blueprint in an effort to promote smoother functioning of financial markets, Paulson said in a speech to the U.S. Chamber of Commerce.
Commercial banks are subject to regulations, including examinations and rules for submitting detailed financial information, to help regulators gauge their safety and soundness.
However, the modern U.S. financial system has become a complex web of financial players — institutions and individuals and practices that are subject to widely different rules.
“This latest episode has highlighted that the world has changed as has the role of other nonbank financial institutions and the interconnectedness among all financial institutions,” Paulson said.
In extraordinary actions aimed at preventing a meltdown of the U.S. financial system, the Fed recently backed JPMorgan Chase’s takeover of Bear Stearns and agreed to provide a multibillion-dollar lifeline for the deal.
In addition, the Fed, in the broadest use of its lending authority since the 1930s, said it would let squeezed Wall Street investment houses come to it directly for emergency loans. That has long been a privilege just for commercial banks.
Paulson said he supported that action but added that it raised important policy considerations about the oversight of investment houses.
