Treasury’s Paulson wants new corp fin police

Apr 04, 2008

Proposal points to extra work for bank IROs

WASHINGTON, DC -- US Treasury Secretary Henry Paulson’s blueprint for improving the country’s financial regulatory architecture introduced this week includes plans for a new overseer for public financial institutions: ‘a corporate finance regulator’.

The details are a little cryptic at this point, but the proposal suggests the new authority would take over the SEC’s responsibilities for monitoring ‘corporate disclosures, corporate governance, accounting and auditing oversight and other similar issues,’ at least with respect to banks. And the brief is likely to expand since the blueprint says the corporate finance regulator could also impose ‘additional requirements on corporate disclosures.’

Just what would those additional disclosures be? It’s not clear, but it appears Paulson wants to open the books on just what’s in every bank’s portfolio given what’s happened over the last year to companies holding packaged derivatives.

Business Week’s chief economist, Michael Mandel, thinks banks and investment banks will be required to fully report their direct and indirect holdings. ‘No more off-the-book special purpose vehicles, no more hiding derivatives under the table,’ he writes. ‘If a bank or an investment bank is holding a security, they have to publish the amount and the basic characteristics.’

Mandel adds the requirement ‘may seem onerous to Wall Street, and it is. But it’s for the benefit not just of the financial system, but for the banks themselves, who appear not to be able to keep track of their own risks without assistance.’

Already the pundits are doubting the likelihood of Paulson’s plan becoming reality. He himself called it ‘aspirational,’ though some ideas may gain traction even absent a total overhaul.

By Anna Snider