“The Federal Reserve should have the information about these institutions it deems necessary for making informed lending decisions,” he during a speech at the U.S. Chamber of Commerce.
Treasury plans to offer a plan overhauling regulation of the nation’s financial services sector within the next several weeks. But Paulson provided no details, saying only the administration was pursing solutions to the country’s credit crisis that don’t require congressional action.
For decades, the Fed extended credit solely to commercial banks. But earlier this month, Paulson helped negotiate JPMorgan Chase & Co.'s buy-out of Bear Stearns Cos., staving off bankruptcy for the investment bank in an effort to slow an ongoing credit crisis sparked by a housing-sector meltdown.
The central bank loan was the first to a non-commercial bank since the Great Depression. Paulson praised the decision but categorized it as “a precedent only for unusual periods of turmoil.”
But central bank guarantees, he stressed, come with disclosure obligations.
“Access to the Federal Reserve’s liquidity facilities traditionally has been accompanied by strong prudential oversight of depository institutions,” he said.
Paulson also downplayed the severity of the housing crisis, urging against the bail-out of homeowners pushed by some congressional Democrats. He encouraged Congress to focus on an administration-backed plan to expand the reach of the Federal Housing Administration and reform Fannie and Freddie, the major government-charted lending agencies.
“Get these things done and some of these other ideas. They’re well-intended,” he said. “But in my opinion, they would cause more harm then good.”