It seems Senator Schumer's op-ed piece on Friday morning was a pre-emptory strike on a report from the Department of Treasury on reform of the Financial System. The Wall Street Journal reported Sunday that Treasury Secretary Henry Paulson "plans Monday to call for sweeping structural changes in the way the government monitors financial markets, capping a broad review aimed at revamping a system of regulatory oversight built piecemeal since the Civil War." The Treasury Department also announced Secretary Paulson's planned remarks on Monday, March 31, at 10am. Check treas.gov to view the event via webcast.

The Journal also released the Executive Summary of the report which provides a preview of the debates to come. In my reading of the summary, I wonder how a study begun in March 2007, before the current crises, may have been affected by current circumstances. Citing the same reasoning as Senator Schumer -- convergence, globilization, and increased information flows via modern IT -- the report provides "a series of 'short-term' and 'intermediate-term' recommendations that could immediately improve and reform the U.S. regulatory structure as well as a 'conceptual model' for an 'optimal' regulatory framework."

The short term recommendations seem to come straight out of a White House crisis managment briefing:

• Establishing a Presidential Working Group

• Analyzing and addressing Mortgage Origination issues, and

• Calling on the Federal Reserve to maintain market liquidity

The intermediate term recommendations call for a large scale consolidation of regulation of banking, insurance, and securities at the Federal level, likely pre-empting current structures in the States.

Finally, the long term "optimal" model for Financial Industry regulation calls for an "objectives-based regulatory approach" modeled after reforms in Australia and the Netherlands. Various members of Congress and even Presidential candidates have already assailed it. Paulson's plan would have three distinct regulators for three objectives:

• A "Market Stability regulator" -- the Federal Reserve with expanded powers and duties

• A "Prudential Financial regulator" (PFRA) "to address issues of limited market discipline caused by government guarantees" such as Federal Deposit Insurance and State established insurance guarantee funds, and

• A "Business Conduct regulator" (CBRA) which would address a broad range of issues such as institutional charters; rulemaking as to disclosure, sales and marketing practices (including laws and regulations addressing unfair and deceptive practices), and anti-discrimination laws; and professional standards such as operational ability, professional conduct, testing and training, fraud and manipulation, and duties to customers. Many of the latter are currently handled by self-regulatory organizations such as FINRA, and the plan calls for this model to be preserved in some fashion.

This tri-partite would be supported by two other "key authorities":

• A "federal insurance guarantor" -- an expanded FDIC with responsibility over both deposit and insurance guarantees, and

• A "corporate finance regulator" with vague duties and powers. Interestingly, the executive summary made no references to the Sarbanes-Oxley regulations.

I bring up this last point about SarbOx because it represents the preferred approach of Congress recently to crises in the financial markets. INPUT will follow developments in this area for its members, but we should keep a bit of perspective. Reforms such as those that either Secretary Paulson or Senator Schumer are advocating would require ambitious, aggressive legislation not seen in this arena since the Federal Reserve Act of 1913 and the two Securities & Exchange Acts of the 1930's. While the need for reform of our regulatory structure to match the market may be similar a century later, certainly neither our current crisis nor the accompanying political will match those seen in the Great Depression.