Doubts Greet Treasury Plan on Regulation

WASHINGTON — As Treasury Secretary Henry M. Paulson Jr. laid out an ambitious plan to overhaul the regulatory apparatus that oversees the nation’s financial system on Monday, lawmakers and lobbyists from an array of industries opposed to the plan predicted that most of it would be dead on arrival.

Skip to next paragraph Multimedia Graphic Some of the Proposed Changes Related On Paper, Wall Street Gets Its Way (April 1, 2008) Text: Treasury's Summary of Regulatory Proposal (March 29, 2008) Text of Paulson's Remarks (treasury.gov) More on the Proposals From the Treasury CNBC Video: Paulson Speech on Regulatory Overhaul -- Part 1, Part 2 Times Topics: Henry M. Paulson Jr. | Federal Reserve System

While the plan promotes a long-term goal of reducing an alphabet soup of regulatory agencies, in the shorter run it may actually do the opposite. One of the blueprint’s few short-term goals is the creation of a mortgage commission that would set new minimum standards for mortgage brokers and otherwise unregulated financial institutions that sell mortgages. The new commission could be formed only by Congress, and some lawmakers predicted it might be adopted this year.

Officials said that, as part of the Paulson plan, President Bush was preparing to issue an executive order soon to expand the membership and reach of an interagency committee called the President’s Working Group on Financial Markets. The group was created after the stock market plummeted in 1987. The group is also expected to consider ways to broaden the authority of the Federal Reserve to lend money to nonbanks as needs arise.

The Working Group, headed by the Treasury Secretary, consists of the top officials from the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission. Under the proposal, it would be enlarged to include the heads of the three other agencies, including one, the Office of Thrift Supervision, that the plan proposes eventually to abolish.

But other than those relatively modest provisions, most parts of the plan are not likely to be adopted any time soon, if at all. The calendar of a Congressional election year seldom favors complex pieces of legislation.

Key lawmakers have signaled that they want to take their time in weighing ideas for broad changes. They are already hearing from state regulators and consumer groups who say that the proposal would do little to curb risky behavior by financial institutions, and from industry groups that say it goes too far.

The plan, produced by a lame-duck Republican administration facing a Democratic Congress, would drastically expand the authority of the Federal Reserve to oversee financial markets. It would consolidate federal agencies that regulate the nation’s securities and commodities futures markets. And it would allow insurance companies, which have long been regulated by the states, to choose instead to have a national charter and be supervised by a new federal agency under the Treasury Department.

Mr. Paulson said on Monday that he did not expect the bulk of the plan to be adopted during the current administration — and he said Congress should not even consider adopting most of it until after the current housing and credit crisis ended.

“Some may view these recommendations as a response to the circumstances of the day,” Mr. Paulson said. “That is not how they are intended.”

Senior lawmakers, while praising the administration for raising important points for further discussion, said the odds were long for a major overhaul before Congress all but shuts down for the elections in the fall.

“Since this is opening day in baseball, I might as well make a baseball metaphor,” said Senator Christopher J. Dodd, the Connecticut Democrat who heads the Senate Banking Committee. “This is a wild pitch. It is not even close to the strike zone.”

Mr. Dodd and Senator Harry Reid of Nevada, the majority leader, said in a telephone conference call with reporters that overhauling the regulatory structure was not a high priority. Instead, they said, they were hoping to quickly move legislation that would help homeowners facing higher mortgage rates and foreclosure.

The Democrats’ bill would provide an additional 0 million for counseling for homeowners in danger of foreclosure, would authorize billion in bonding authority for housing finance agencies to refinance subprime loans, and provide billion for local governments to purchase foreclosed properties.

The bill would also change the bankruptcy laws to allow judges to modify mortgages on primary homes — a provision opposed by Republicans who say it will only increase mortgage rates.

“In time, we will hold hearings on reorganizing the regulatory structure,” Mr. Dodd said.

In a statement later in the day, Mr. Dodd indicated that he had reservations about the plan’s proposal to expand the authority of the Federal Reserve.

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