Paulson to reveal more on Fed stability role
Treasury Secretary Henry Paulson will reveal more details about his accelerated plans for the Federal Reserve to assume a larger regulatory role in maintaining financial system stability in a speech in London on Wednesday.
“I will be expanding on the role of the Fed as a macro stability regulator to look across the entire financial system, but will be emphasizing how this just has to be paired with market discipline,” Paulson told reporters on Monday aboard his plane to Berlin after a day of meetings with leaders in Moscow.
“I’ll be talking some more about moral hazard and will be talking about how all of this needs to come together with a rethink of the resolution process for institutions when there’s government intervention,” Paulson said.
Paulson’s speech before the Chatham House think-tank in London comes as the Fed and the Securities and Exchange Commission are nearing a formal agreement to share information about investment banks and amid an intensifying debate on what additional regulation may be needed in the wake of a massive credit crisis.
The plan could lead to a permanent change to the Fed’s relationship to Wall Street, giving the U.S cash till payday. central bank permanent powers to step in and make emergency loans to investment banks if the greater stability of the financial system is threatened.
In March, the Fed helped engineer a takeover of Bear Stearns by JPMorgan Chase & Co and guaranteed a $29 billion loan to facilitate the transaction out of concern that a Bear Stearns bankruptcy could trigger a financial panic. It also allowed Wall Street banks to borrow short-term funds from its discount window for the first time since the Great Depression.
Paulson earlier this month urged quick action to give the Fed authority to make liquidity available to a broader range of financial institutions under certain circumstances.
The Fed-SEC agreement is expected to set out the scope for sharing information related to the Fed’s discount lending window and other areas. It also would provide a mechanism for regulators to get a broader perspective on institutions and markets that could affect the financial system stability.