WASHINGTON -- The Treasury Department will propose Monday that Congress give the Federal Reserve broad new authority to oversee the stability of the financial markets, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.
The proposal is part of a sweeping blueprint to overhaul the nation's hodgepodge of financial regulatory agencies, which many experts say failed to recognize rampant excesses in mortgage lending until after they set off what is now the worst financial calamity in decades.
Democratic lawmakers are all but certain to say that the proposal does not go far enough in restricting the kinds of practices that caused the financial crisis. Many of the proposals, such as those that would consolidate regulatory agencies, have nothing to do with the turmoil in financial markets. And some of the proposals could reduce regulation.
According to a summary provided by the Bush administration, the plan would consolidate an alphabet soup of banking and securities regulators into a powerful trio of overseers responsible for banks, brokerage firms, hedge funds and private equity firms.
The plan could expose Wall Street investment banks and hedge funds to greater scrutiny, but it carefully avoids a call for tighter regulation.
The plan would not rein in practices that have been linked to the housing and mortgage crisis, such as packaging risky subprime mortgages into securities carrying the highest ratings.
The Fed would gain some authority over Wall Street firms, but only when an investment bank's practices threatened the entire financial system.
And the plan does not recommend tighter regulation of the vast and largely unregulated markets for risk-sharing and hedging, such as credit default swaps, which are supposed to insure lenders against loss but became speculative instruments and gave many institutions a false sense of security.
Parts of the plan could reduce the power of the Securities and Exchange Commission, which is responsible for maintaining orderly stock and bond markets and protecting investors. The plan would merge the SEC with the Commodity Futures Trading Commission, which regulates exchange-traded futures for such commodities as oil, grains and currencies.
