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But Paulson's comments, made in a speech to the U.S. Chamber of Commerce, stopped well short of a call for a Fed grab for broad new powers over Wall Street. More tempered reports of his speech were offered up not only by The Daily Deal, but also The Financial Times and The Associated Press. Paulson was very careful to limit his call for additional oversight only to investment banks that gain temporary access to the discount window, a new right granted to about 20 of the largest firms in the wake of the Bear Stearns Cos. takeover. He also stressed that the discount window is likely to remain open to Wall Street only during "unusual periods of turmoil." "I believe a few constructive steps would enable the Federal Reserve to protect its balance sheet, and ultimately protect U.S. taxpayers," he said, before giving a few specifics on what he wants right now. First, he said, the process for providing funds to nonbanks must be as transparent. He suggested the Fed should spell out terms for eligibility, situations in which funds will be made available and the mechanism for determining the size and price for the funds. Paulson also said the Fed should have the necessary information about these institutions to make informed lending decisions. "With this added information flow, the Federal Reserve will be better positioned to consider market stability issues like liquidity provisioning and the interconnectedness of financial institutions." Speculation about a massive expansion of Fed power is being fueled by a Treasury-led "blueprint" for revamping capital markets oversight that will be released in a few weeks. The Fed's intervention at Bear Stearns, the first at a nondepository institution since The Depression, has sent minds racing about what changes will be recommended. But, prior to the Bear Stearns intervention, nothing from Treasury indicated that the blueprint would urge a radically more powerful Fed. Instead, some calls to merge the array of regulators overseeing banks and other depository institutions were expected as was a possible call to combine the Securities and Exchange Commission and the Commodities Futures Trading Commission. Paulson initiated the study in response to concerns that the U.S. is losing its competitive edge because of heavy-handed regulation, including provisions of the 2002 Sarbanes-Oxley Act. In February Treasury Undersecretary for Domestic Finance Robert Steel told the New York Society of Securities that some recommendations would likely urge adoption of the U.K.'s principles-based approach to regulation, which emphasizes greater reliance on judgment over specific rules and puts the burden on market participants to ensure they are in compliance. It's likely that Paulson is rethinking a move to principles-based regulation given that any proposal to allow market participants to police themselves would be met by derision in the wake of the mortgage-lending debacle. - Bill McConnell See the text of Paulson's remarks Categories Deal Video
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Treasury Secretary Hank Paulson's call for new Fed scrutiny of investment banks Wednesday prompted a front-page story in today's 
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