The Obama administration plans to tighten the nation's financial regulatory system, including stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, the New York Times reported.
The broad changes include increased oversight of the complex financial instruments that helped spawn the current economic crisis, the newspaper said on its website Saturday night.
The newspaper based its story on interviews with officials as well as confirmation hearings for senior administration appointees, and a recent report by an international committee led by Paul Volcker, one of President Obama's chief economic advisers.
These officials want rules that would eliminate conflicts of interest at credit rating agencies that gave top investment grades to the ultimately shaky financial instruments that have been one source of market turmoil.
The officials pointed out that under the present system, the agencies are paid by companies to help them structure financial instruments - which the agencies then grade.
“Until we deal with the compensation model, we're not going to deal with the conflict of interest and people are not going to have confidence that the ratings are worth relying on, worth the paper they're printed on,” the newspaper quoted the newly confirmed Securities and Exchange Commission head Mary Schapiro as saying.
Treasury secretary Timothy Geithner made similar written and verbal comments before Senate Finance Committee, it said.
The officials said the Obama administration has embraced one of the themes of the Volcker report as a guiding principle - that major companies and financial instruments that are mostly unsupervised must be brought back under a larger regulatory umbrella.
While some actions will be require legislation, others should be achievable through regulations adopted by federal agencies, the Times said.
The administration plans to propose new federal standards for mortgage brokers who issued often unsuitable loans, but have been mostly regulated by the states. They are also considering having the SEC become more involved in supervising the underwriting standards of mortgage-backed securities, it added.
Other goals include requiring that derivatives like credit default swaps - insurance against loan defaults which were central to the financial collapse - be traded through a central clearinghouse and possibly on one or more exchanges.
Additionally, the plan may include a broader role for the Federal Reserve in protecting the economy from companies whose troubles pose system-wide risks, as the report issued this month under Volcker proposed.
Officials have also begun studying ways to control executive compensation, the Times said.
Another component will provide the strategy for how the government will go about shoring up the flagging banking industry, the newspaper said.
Senior aides vow to move quickly on the new financial regulatory plan, it said. (Reuters)