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A financial market regulator should have the authority to review certain private pools of capital, such as hedge funds and private equity, said the United States finance minister at the end of March.



Such pools of capital “have the potential to contribute to a systemic event,” added Treasury Secretary Henry Paulson. He was introducing the department’s Blueprint for a Modernized Financial Regulatory Structure, an ambitious plan to overhaul the supervision of the US’s financial system.



A Treasury press release describes the US’s present regulatory structure as “an antiquated system struggling to keep pace with market developments, while facing increasing challenges to anticipate and prevent today's financial crises”.



“Globalization and financial innovation, such as securitization, have provided benefits to domestic and global economic growth; while highlighting new risks to financial markets,” says the press release.



The US government does not expect to be able to implement all the proposals before President Bush leaves office at the beginning of next year. Secretary Paulson said the new regulatory model “will not and could not be implemented any time soon”, though it could serve as a guide for earlier measures.



The 218-page Treasury Blueprint also contains short-term recommendations for quick action. It recommends creating a new federal commission for mortgage loan-making, to better protect borrowers against unsuitable or abusive loans. It also recommends clarifying the conditions under which the Federal Reserve, the nation’s monetary authority, provides liquidity.



The long-term recommendation is to create an entirely new regulatory structure consisting of a market stability regulator (new tasks and powers for the Federal Reserve), a prudential regulator to consolidate banking supervision, and a business conduct regulator with a focus on consumer and investor protection across all types of financial entities.



Nearly all the Treasury’s proposals require the approval of the US Congress, where Democrats are already developing their own proposals. They focus on measures to help the many homeowners who are struggling to meet their mortgage payments.



The Democratic Leader in the House of Representatives called Secretary Paulson's regulatory plan “a step in the right direction”, but said there was a need to go further, also in taking immediate steps to help families hurt by the current crisis.



"Congressional Democrats will continue to work to provide additional assistance to millions of families at risk of losing their homes, bring much-needed relief to consumers feeling the impact of the economic downturn, and ensure meaningful regulation of the financial system,” said Nancy Pelosi, who is also the Speaker of the House of Representatives.



An article in the New York Times newspaper points to both regulatory and de-regulatory features of the Treasury’s proposals.