Released: March 27, 2008

Tighter reins on investment banks

Source: Jeffrey H. Birnbaum, Washington Post (Free Registration)

Treasury Secretary Henry M. Paulson Jr., tempering the Bush administration’s long preference for limited regulation of financial markets, called yesterday for strengthened federal oversight of investment banks in the wake of the collapse this month of Wall Street giant Bear Stearns.

Paulson urged that investment banks provide more information about their operations, especially since the Federal Reserve has begun to allow these firms, for now, to borrow public money when they run short on cash. He said the heightened oversight should also be temporary. This would subject investment banks to some of the oversight applied to commercial banks, which have long had ready access to Fed loans.

His recommendation comes after the Fed helped prevent the bankruptcy of Bear Stearns by brokering its sale to J.P. Morgan Chase and guaranteeing about $30 billion in Bear Stearns’s risky securities with public funds. Two Senate committees said yesterday that they would investigate the rescue. 

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