Paulson: Additional, Stronger Regulation Needed to Handle a Company’s Financial Failure
Today U.S. Treasury Secretary Henry Paulson said that the United States must strengthen its process for regulators to unwind failing investment banks without threatening the stability of the financial system.
Paulson said his first priority was to maintain market stability amid the current turmoil, but he wants to move quickly to address regulatory deficiencies exposed by the credit crisis which began nearly a year ago.
"In my view, looking beyond the immediate market challenges of today, we need to create a resolution process that ensures the financial system can withstand the failure of a large, complex financial firm," Paulson said in remarks prepared for delivery to the Chatham House think tank in London.
"To do this, we will need to give our regulators emergency authority to limit temporary disruptions.
These authorities should be flexible and -- to reinforce market discipline -- the trigger for invoking such authority should be very high, such as a bankruptcy filing," he added.
He said the perception should be avoided that an institution is "too interconnected to fail or too big to fail" and added that "we must improve the tools at our disposal for facilitating the orderly failure of a large, complex, financial institution." On the final leg of a five-day trip to Russia, Germany and Britain to discuss trade and economic issues, Paulson was due on Wednesday to meet in London Prime Minister Gordon Brown, finance minister Alistair Darling, Financial Services Authority Chairman Callum McCarthy and Conservative Party Leader David Cameron.
Paulson's remarks, made available in advance, come amid debate over what additional regulation is needed in the wake of a rescue of Wall Street investment bank Bear Stearns.
Published on July 2, 2008
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