21 November 2008

Treasury Paulson - not too interconnected or too big to fail

We need more effective regulations within an entirely new regulatory framework and a stronger capacity for resolution and crisis intervention that reinforces market discipline, Paulson said.

Treasury Secretary Paulson outlined a new regulatory framework which would include market infrastructure, transparency and wind-down authorities. “We need more effective regulations within an entirely new regulatory framework and a stronger capacity for resolution and crisis intervention that reinforces market discipline”, he said. "No institution should be deemed to be too interconnected or too big to fail."

 

The federal bankruptcy system should be amended for the wind-down non-depository institutions that may be too big or too interconnected to fail.

 

This new model includes that systemically-important institutions, including hedge funds, should be required to have a charter that would permit some type of oversight. Similarly, any financial product whose market size presents a systemic issue should be subject to regulatory oversight, Paulson said and also called for greater standardization of products and a wholesale review of the originate-to-distribute securitization model.

 

“We must address those aspects of our system that reinforce rather than counterbalance cycles”, he said and criticized that “mark-to-market accounting is clearly pro-cyclical”.

 

On a global basis, co-operation between national regulators should be strengthened.

 

Full speech

 

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