Hank Paulson, the US Treasury Secretary, issued a plea for serious consideration of his ground-breaking plans for a simplification of financial regulation, as critics lined up to warn they would not be enough to protect consumers and prevent financial crises.
The proposals, trailed as the most far-reaching overhaul of the regulatory system since the Great Depression, will hand new powers to maintain financial stability to the Federal Reserve, and fold the Securities and Exchange Commission into a giant new regulator overseeing all financial market trading.
But while the plan received praise for being bold, banking groups, consumer advocates and politicians added a litany of caveats that could bog down any attempt to push through serious reform.
"This is a complex subject deserving serious attention," Mr Paulson said as he unveiled the plan yesterday. "Those who want to quickly label the blueprint as advocating 'more' or 'less' regulation are over-simplifying this critical and inevitable debate. Government has a responsibility to make sure our financial system is regulated effectively, and in this area we can do a better job ... Few, if any, will defend our current balkanised system as optimal."
The plan would consolidate a number of smaller regulators and give new powers to the Federal Reserve to examine the books at hedge funds, insurance firms and brokers, and to look for instability in the financial system. The near-collapse of Bear Stearns last month illustrated how inter-connected securities firms, hedge funds and banks have become now that they trade a raft of complex derivative products. The Fed stepped in to broker a rescue deal precisely because the failure of Bear Stearns would have precipitated a system- wide …