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Treasury Secretary Henry Paulson revealed plans for the most sweeping overhaul of financial regulation since the Great Depression.

Work on the 218-page “blueprint” began before markets unraveled last August. It offers no quick fix for the credit crisis that has roiled Wall Street and left millions of Americans in danger of losing their homes. And it’s sure to face stiff resistance from Capitol Hill, within the financial sector and from various government bureaucratic interests, analysts said.

Paulson said most of the proposals would not be enacted until after the current troubles, maybe long after President Bush leaves office.

He proposed vesting new powers in the Federal Reserve as a “market stability regulator” formalizing a role the central bank has started to perform recently by expanding the list of financial firms who can borrow directly.

It would give the Fed authority to require full disclosure from financial firms. The central bank also could work with other regulators in setting rules.

Paulson Wary Of Tough Rules

Many critics blame lax oversight for the mortgage mess. But Paulson, a 30-year Wall Street vet, said regulation must be light enough to keep markets innovative.

The plan, which would need congressional action for many changes, seeks to streamline a hodgepodge of overlapping jurisdictions that date back to the Civil War.

It would give the Fed more power to protect the stability of the entire financial system while merging daily bank supervision into one agency, down from five now.

It would create a superagency for business conduct and consumer protection, performing many duties of the current Securities and Exchange Commission.

It also would scrap the Office of Thrift Supervision and the Commodity Futures Trading Commission [CFTC], merging their functions into other agencies.

It would ask Congress to create a Mortgage Origination Commission to recommend minimum licensing standards for mortgage brokers, many of whom now are outside of federal regulation. It also would take a first step toward federal insurance regulation by asking Congress to establish an Office of Insurance Oversight inside the Treasury.

Dems Say Plan Too Timid

Paulson said the Bush administration’s focus would remain on the credit crisis. But he rejected Democratic charges that poor regulation of mortgage brokers and the financial industry caused today’s mess.

“I do not believe it is fair or accurate to blame our regulatory structure for the current market turmoil,” he said. “I am not suggesting that more regulation is the answer or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years.”

Sen. Charles Schumer, D-N.Y., though, said in a statement that deregulation “did much to contribute to the meltdown in our housing market and the accompanying spillover to our financial markets. The administration’s ‘deregulation-above-all-else’ attitude helped cause the problems we now face.”

House Financial Services Committee Chairman Barney Frank, D-Mass., who is working on his own regulatory revamp, called Paulson’s proposal a “constructive step” but said it wouldn’t give the Fed enough authority.

Some state officials criticized what they saw as unwanted federal intrusion on their turf.

Massachusetts Secretary of the Commonwealth William Galvin blasted Paulson’s plan as “a disastrous backward step that would put the investor in jeopardy” because it would pre-empt state regulation of securities and insurance.

Banks raised strong objections.

“Dismantling the thrift charter and crippling state banking charters will weaken banking in America,” said Edward Yingling, head of the American Bankers Association.

CME, parent of the top U.S. futures exchange, voiced doubts about merging the CFTC and SEC.

But Tim Ryan, head of the Securities Industry and Financial Markets Association, representing over 650 securities firms, banks and asset managers, praised the proposals. He said there was widespread agreement on the need for modernization in an era “where billions of dollars race across the globe with the click of a mouse.”

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