WASHINGTON (Reuters) - Treasury Secretary Henry Paulson will announce on Thursday a proposal to broadly revamp rules for credit markets and mortgage brokers, to help avoid a repeat of the housing slump and credit crunch that threatens the U.S. economy with recession.
By David Lawder
WASHINGTON (Reuters) - Treasury Secretary Henry Paulson will announce on Thursday a proposal to broadly revamp rules for credit markets and mortgage brokers, to help avoid a repeat of the housing slump and credit crunch that threatens the U.S. economy with recession.
A Treasury official confirmed a Wall Street Journal report that detailed many of the proposals and quoted Paulson as saying that the Treasury-led President's Working Group on Financial Markets -- an umbrella group of the U.S. financial regulators -- would recommend strengthening state and federal oversight of mortgage brokers and lenders.
Paulson is due to make the announcement in a speech on Thursday morning.
!ADVERTISEMENT!The plan comes as the government and the Federal Reserve seek to fix debilitated U.S. mortgage bond and housing markets.
The working group, created after the 1987 stock market crash, is led by the Treasury and also includes the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission.
The regulators will recommend "strong nationwide licensing standards" for mortgage brokers, and call on credit-rating firms and regulators to differentiate between ratings on complex structured products and conventional bonds, the Wall Street Journal said.
The group will recommend that issuers of mortgage-backed securities disclose more about "the level and scope of due diligence" and about the underlying assets of the securities.
According to excerpts from his speech, which were made available to Reuters, Paulson said regulation "needs to catch up with innovation and help restore investor confidence, but not go so far as to create new problems, make our markets less efficient or cut off credit to those who need it."
In the speech, Paulson also said the Treasury was encouraging financial institutions to strengthen balance sheets by raising capital and revisiting dividend policies. "We need these institutions to continue to lend and facilitate economic growth."
He also said regulators will issue new rules and seek regulatory authorities as needed, evaluate progress, provide guidance and enforce applicable laws, the excerpts show.
According to the Journal, the U.S. regulatory group will urge global banking regulators to revisit the latest version of bank capital requirements, known as Basel II, to ensure banks have sufficient capital, it said.
"We are going to be mindful when we implement it to not create a burden," Paulson told the Journal. "But we think it's very appropriate to lay out some of the causes and some of the steps that need to be taken ... to minimize the likelihood of this happening again."
The report said various government bodies had worked on the recommendations for over seven months and that Paulson and Federal Reserve Chairman Ben Bernanke had "huddled" for half a day early this month to review the details.
(Additional reporting by Ritsuko Ando)
