Treasury Secretary to Call for Greater Powers for Federal Reserve

Treasury Secretary Henry Paulson is expected to call for new powers for the Federal Reserve to deal with risks to the entire financial system.

In a speech prepared for delivery today, Paulson says the nation expects the central bank to intervene to “avert events that pose unacceptable systemic risk," the Washington Post reports. But the Fed "has neither the clear statutory authority nor the mandate to anticipate and deal with risks across our entire financial system."

Paulson says that when a firm such as Bear Stearns poses risks to the system, the Fed needs explicit authority to step in and demand information. The Fed took unprecedented steps this spring when it provided financial backing for a buyout of the troubled brokerage firm and made emergency loans to investment banks.

The speech appears to agree with the principle of giving the Federal Reserve more authority over investment banks that could need financial support in a crisis, the Wall Street Journal reports (sub. req.).

“We should quickly consider how to most appropriately give the Fed the authority to access necessary information from highly complex financial institutions and the responsibility to intervene in order to protect the system, so they can carry out the role our nation has come to expect—stabilizing the overall system when it is threatened,” Paulson says in the speech, according to a New York Times account.