U.S. Treasury Department Office of Public Affairs

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"We should and can have a structure that is designed for the world we live in, one that is more flexible, one that can better adapt to change, one that will allow us to more effectively deal with inevitable market disruptions and one that will better protect investors and consumers. The challenge is to evolve to a more flexible, efficient and effective regulatory framework – and that is the purpose of this Blueprint."

- Treasury Secretary Henry M. Paulson, Jr.

- A strong financial system is vitally important - not for Wall Street, not for bankers, but for working Americans. When our markets work, people throughout our economy benefit – Americans seeking to buy a car or buy a home, families borrowing to pay for college, innovators borrowing on the strength of a good idea for a new product or technology, and businesses financing investments that create new jobs. And when our financial system is under stress, millions of working Americans bear the consequences. Government has a responsibility to make sure our financial system is regulated effectively. And in this area, we can do a better job. In sum, the ultimate beneficiaries from improved financial market regulation are America’s workers, families and businesses – both small and large.

- Financial institutions play an essential role in the U.S. economy by providing a means for consumers and businesses to save for the future, to protect and hedge against risks, and to access funding for consumption or new investment opportunities.

- The current regulatory framework for financial institutions is based on a structure that has been largely knit together over the past 75 years. It has evolved in an accretive way in response to problems without any real focus on overall mission: Congress established the national bank charter in 1863 during the Civil War, the Federal Reserve System in 1913 in response to various episodes of financial instability, and the federal deposit insurance system during the Great Depression. Changes were made to the regulatory structure in the intervening years in response to other financial crises (e.g., the thrift crises of the 1980s) or as enhancements (e.g., the Gramm- Leach-Bliley Act of 1999 ("GLB Act")), but for the most part the underlying structure resembles what existed in the 1930s.

- The current U.S. financial regulatory framework includes:

• Five federal depository institution regulators in addition to state-based supervision.


• One federal securities regulator and one federal futures regulator. We also have additional state based supervision of securities firms as well as self-regulatory organizations with broad regulatory powers.


• Insurance regulation is almost wholly state-based, with 50+ regulators. This structure raises a number of issues with an international dimension that can be inefficient and costly.

- Last March, Treasury convened a blue-ribbon panel to discuss U.S. capital markets competitiveness. Industry leaders and policymakers alike agreed that the competitiveness of our financial services sector – and its ability to support U.S. economic growth – is constrained by an outdated financial regulatory framework.

- Although we began this effort a year ago, market conditions today provide a pertinent backdrop for this study’s release and highlight the need to examine the U.S. regulatory structure. Recent events have also reinforced the direct relationship between balancing strong consumer protection and market stability on the one hand, and capital markets competitiveness on the other.

- The United States is the world leader in financial services, so it is from this position of strength that we must constantly work to improve our system. Treasury’s working assumption is that we are engaged in a global race-to-the-top, to achieve the optimal regulatory structure for the financial services industry. The optimal regulatory structure needs to attract capital based on its effectiveness in promoting innovation, managing system-wide risks, and fostering consumer and investor confidence.

- Capital markets and the financial services industry have evolved significantly over the past decade. Globalization and financial innovation, such as securitization have provided benefits to domestic and global economic growth; while highlighting new risks to financial markets.

- These developments are pressuring the U.S. regulatory structure, exposing regulatory gaps and redundancies, and often encouraging market participants to do business in other jurisdictions with more effective regulation. As a result, the U.S. regulatory structure reflects an antiquated system struggling to keep pace with market developments while facing increasing challenges to anticipate and prevent today’s financial crises.

- Public input has been important to our work. In addition to the range of views present at our Capital Markets Conference in March 2007, Treasury published a request for public comment in the Federal Register in October. Response was solid as the Treasury Department received hundreds of letters from investor advocates, state regulators, financial institutions and many others. All public comments were posted on the internet.

- Treasury and prior Administrations previously pursued these studies with a long-term outlook for implementation. For example, both the Blueprint for Reform: The Report of the Task Group on Regulation of Financial Services (1984) and the Modernizing the Financial System: Recommendations for Safer, More Competitive Banks (1991) laid the foundation for many of the changes adopted in the Gramm-Leach-Bliley Act of 1999 ("GLB Act"), including the concept of functional regulation.

- In this report, Treasury presents a series of short, intermediate and long-term recommendations for reform of the U.S. regulatory structure.

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