US Treasury Plans Banking Reform

US Treasury Secretary Henry Paulson has revealed his department is working on a "blueprint for regulatory reform" in an effort to avert further market turmoil in the wake of investment bank Bear Stearns' collapse.

"This latest episode has highlighted that the world has changed," he said. "These changes require us all to think more broadly about the regulatory and supervisory framework."

He said the move by the Federal Reserve to open its lending to securities firms on the same terms as regulated banks was appropriate, but as an emergency measure.

He warned: "Despite the fundamental changes in our financial system, it would be premature to jump to the conclusion that all broker-dealers or other potentially important financial firms in our system today should have permanent access to the Fed's liquidity facility. Recent market conditions are an exception to the norm."

Leaders of the US Senate Finance Committee yesterday asked Mr Paulson's department, the Federal Reserve, JP Morgan Chase and Bear Stearns for more details about JP Morgan's plan to buy Bear Stearns.

Democrat Max Baucus, chairman of the committee, said: "Economic times are tight on Main Street as well as on Wall Street, and we have a responsibility to all taxpayers to review the details of this deal."

With support from the Fed and the Treasury, Bear Stearns has agreed to be sold to JP Morgan for about $10 a share. As part of the deal, the Fed agreed to guarantee up to $29bn of Bear's assets.

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