US announces financial overhaul

The move comes as the US faces an economic slowdown sparked by the subprime mortagage crisis.

 

Paulson said the plan was not “a response to the circumstances of the day,” but aimed at addressing “complex, long-term issues” to help make markets more efficient and competitive.

 

Democrat criticism

 

The plan, which would require congressional approval for its biggest changes, seeks to cut overlapping jurisdictions that date back in some cases to the 19th century.

 

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“This is no quick fix,” said Al Jazeera’s John Terrett, “Its not really to affect the unfolding mortgage crisis.”

 

The plan will give the Federal Reserve, the US central bank, more power to protect the stability of the entire financial system while merging day-to-day bank supervision into one agency, down from five at present.

 

It also would create one large agency in charge of business conduct and consumer protection, performing many of the functions of the current Securities and Exchange Commission.

 

The plan also asks Congress to establish a federal Mortgage Origination Commission to set recommended federal standards for mortgage brokers.

 

The administration’s plan has drawn criticism from Democrats that it does not deal with abuses in mortgage lending and securities trading that were exposed by the subprime crisis.

 

“To talk about overhauling the regulatory system is a wonderful idea. But frankly it doesn’t relate to the issues we’re grappling with,” said Christopher Dodd, chairman of the Senate Banking Committee.

 

“I would call this a wild pitch. It’s not even close to the strike zone,” he said.

 

US banks have reported losses of tens of billions of dollars after offering loans that borrowers were later unable to repay.

 

The crisis has also affected international lenders, who bought into or offered subprime loans in the US and then contributed to bouts of chaos on international financial markets.