US Treasury Secretary Henry M Paulson has called on the Federal Reserve to be given more powers to extend its "last resort" facility to aid ailing financial institutions.
Speaking in Washington yesterday, Paulson expressed the need to update the emergency authorities of the Federal Reserve, Treasury and other financial regulators, to reflect the current financial system.
His remarks come just a day after UK Chancellor Alistair Darling outlined plans for a new banking bill, giving additional powers to the FSA and Bank of England.
Paulson says much of the Fed's current authority as lender of last resort was granted during the Great Depression.
“Our regulatory system needs an overhaul,” he says. “The Fed has neither the clear statutory authority nor the mandate to anticipate and deal with risks across our entire financial system.”
Paulson says whether it was the measures to aid Long Term Capital Management in 1998 or Bear Stearns this year, the US public expects the Federal Reserve to avert unacceptable systemic risk.
“We have now learned that a wider range of institutions can potentially threaten the stability of the financial system,” he says.
“It seems clear that in the future the central bank might need to make liquidity available to a broader range of financial institutions under certain extraordinary circumstances.
“In light of the changes and developments in today's financial markets, we should take a hard look at whether the Congress has given the Fed the appropriate authority and direction to execute this lender of last resort responsibility when the system is threatened.”IFAonline
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