WASHINGTON (CNN) -- The Federal Reserve would have the power to regulate virtually the entire financial industry under a Treasury Department proposal to be announced Monday.
Treasury Secretary Henry Paulson will introduce the proposals in a speech Monday, a spokeswoman says.
The proposal is part of a sweeping overhaul of the government's regulatory structure that Treasury Secretary Henry Paulson will propose in a speech Monday, said Treasury Department spokeswoman Michele Davis.
"I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years," Paulson will say, according to a text of the speech obtained by The Associated Press.
According to Brookly McLaughlin, another department spokeswoman, Paulson will propose these changes:
• Give the Federal Reserve authority to look at the financial status of any institution that could affect market stability;
• Merge the Securities and Exchange Commission with the Commodity Futures Trading Commission;
• Give stock exchanges more room for self-regulation;
• Consolidate bank supervision into one regulator.
One of the most dramatic changes would extend the powers of the Federal Reserve -- designed to regulate the commercial banking industry -- to oversight of virtually the entire financial industry.
That change would make the Fed the first responder to a potential financial crisis. Currently, several agencies and commissions have oversight over various parts of the industry, but none has the broad authority.
The proposals have been in the works since June -- two months before the current sub-prime mortgage crisis began affecting financial markets, Davis said.
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Nevertheless, the proposed change would help the oversight and regulatory system catch up with the events of the last two weeks, when the Federal Reserve intervened to facilitate the sale of failing brokerage Bear Stearns to JP Morgan Chase.
The financial industry's initial response was positive.
Tim Ryan, president and CEO of the Securities Industry and Financial Markets Association, called Paulson's proposals "a thoughtful and sweeping plan."
"Our present regulatory framework was born of Depression-era events and is not well suited for today's environment where billions of dollars race across the globe with the click of a mouse," he said.
"That fact, teamed with the current market conditions, result in a universal agreement that it is time to modernize and revitalize the current system."
Some of the proposals -- broadening the focus of a presidential working group on financial markets and tightening oversight on mortgage originators -- are classified as short-term recommendations.
Davis said the department does not expect to finish the longer-term proposals before President Bush leaves office in January. Instead, she said, Paulson is trying to start the process of creating "a better regulatory framework so we're in better shape next time" there's a rough patch in the economy.
The banking and financial industry regulation structure has been developed over decades, from the establishment of the national bank charter in 1863 to the creation of the Federal Reserve system in 1913 to recent changes made in response to other crises.
The ever-expanding complexities of global markets have largely outgrown some of the structure's component parts, creating weaknesses and redundancies.
Nearly all of the proposals will require the approval of Congress, where Democrats are at work on their own proposals.
Sen. Charles Schumer, D-New York, said that Democrats "agree with large parts" of Paulson's plan but think the proposals should go further.
"Very complex financial instruments have evolved in recent years, like [collateral debt obligations] and credit default swaps, which pose potential problems in terms of systemic risk," Schumer said. "The Treasury Department should address these issues as well."
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