Treasury Secretary Henry Paulson has proposed a series of regulatory reforms focused on lessoning future market turmoil and preventing crises like the current one. The effect would be to make the Federal Reserve far more powerful, giving it regulatory control over all financial institutions that operate with government guarantees including the insurance industry. The plan would also streamline the current system by merging certain agencies and eliminating redundancies.
Almost all of Paulsonâ€™s plan would require Congressional approval and most of it would not be in place until the next president takes office. Given the dramatic changes in the financial industry over the last ten to twenty years, updating our regulatory structure is a necessity. Hopefully Congress will be willing to work with Treasury Department officials as well as industry experts to develop a system that can adequately balance the need for oversight with the need for market flexibility. Too much regulation can be as harmful to financial systems as too little, so none of us should be upset that developing suitable reforms may take awhile.