Government Unveils New Plan to Regulate Financial System

Washington, D.C.–The Bush administration announced a proposal to revamp regulation of the U.S. financial system on Monday that marks the biggest overhaul since the Great Depression, the New York Times reports.The new plan would add a group of federal regulators with autonomy over all sectors of the financial system.Hedge funds and private equity firms, previously free from government oversight, would be monitored by the federal government. However, the government’s powers would only involve collecting information unless a large financial crisis had happened.In the plan, the Fed would be allowed to go through the books at brokerage firms, hedge funds, commodity-trading exchanges and other institutions. The Securities and Exchange Commission would join with the Commodity Futures Trading Commission, which oversees exchange-traded futures for oil, grains and currencies, and the S.E.C. would be encouraged to lessen its oversight of some areas, such as giving stock exchanges more power to self-regulate.A new agency would be created to focus on safety for financial institutions with government guarantees, and another would monitor business to safeguard public investors and financial firm customers.According to the Times, the plan reflects its author’s background. Treasury Secretary Henry M. Paulson Jr. previously worked for years on Wall Street and is a former Goldman Sachs chief executive. Paulson has been concerned that stricter regulations could weaken American markets’ capability to compete with foreign markets.Congress needs to approve nearly every detail of the proposal for it to go into effect, the Times said; Democratic leaders are already working on their own bills to encourage stricter supervision of investment banks, hedge funds and the derivatives market.