Overhauling financial rules will take years
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financial rules April 1st, 2008(04-01) 04:00 PDT Washington — It was only by coincidence that the giant overhaul of U.S. financial regulations proposed by the Treasury Department on Monday arrived during a financial crisis, but a key part of the plan, to extend the Fed’s regulation of investment banks, is a reaction to what has become the biggest U.S. financial crisis since the Depression.
The proposals were initiated during happier times a year ago under Treasury Secretary Henry Paulson, before subprime lending, mortgage-backed securities and Bear Stearns became household words. Paulson’s aim was not tighter regulation of investment banks and mortgage brokers run amok but rather the erosion of Wall Street’s pre-eminence as a financial center to global competitors such as London.
But even Paulson, whose plan includes ideas that have been around for decades, acknowledges that this is merely the start of a long discussion that could take years. The process is a lot like tax reform. Everyone agrees the current tax code is a monstrosity, yet it lumbers on because every change threatens vested interests that are well represented in Congress.
Today’s financial regulations and agencies were created in response to past crises: federal bank charters were instituted during the Civil War; the Federal Reserve was created in 1913 after a series of financial panics; federal deposit insurance and bank regulation came after the bank runs of the Great Depression.
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