WASHINGTON — Signaling a willingness by the Bush administration to expand its oversight of Wall Street, Treasury Secretary Henry M. Paulson Jr. said Wednesday that investment banks should submit to greater supervision if they want regular access to Federal Reserve loans.
With Congress increasingly inclined to consider additional regulation of the mortgage industry -- including Wall Street firms -- Paulson's statement, though limited, marks a significant shift from the position the administration held before the current credit crisis.
The Treasury chief spoke amid fresh congressional scrutiny of the government's role in JPMorgan Chase & Co.'s agreement last week to acquire troubled brokerage Bear Stearns Cos.
The Fed underwrote the Bear Stearns deal by agreeing to lend JPMorgan $30 billion. The central bank then said it was temporarily allowing other major Wall Street firms to also borrow directly from the Fed via its "discount window," which since the 1930s has been restricted to banks that accept traditional deposits.
Two leading senators sent a letter Wednesday to Paulson, Fed Chairman Ben S. Bernanke, the head of the Federal Reserve Bank of New York and the chief executives of JPMorgan and Bear Stearns asking for detailed information on the arrangement agreed to by the two financial giants and the Fed.
"It's the Finance Committee's responsibility to pin down just how the government decided to front $30 billion in taxpayer dollars for the Bear Stearns deal," Chairman Max Baucus (D-Mont.) said in a statement. "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."
The letter was cosigned by the committee's top Republican, Charles E. Grassley (R-Iowa).
Meanwhile, Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, scheduled hearings on the transaction for next week.
When it opened the discount window to non-banks, the Fed said it would continue to make such loans available for six months. In a speech Wednesday before the U.S. Chamber of Commerce, Paulson insisted that if investment banks wanted the right to borrow from the Fed after that six-month period, they should open their books.
"Access to the Federal Reserve's liquidity facilities traditionally has been accompanied by strong prudential oversight of depository institutions," Paulson said. speech"Certainly, any regular access to the discount window should involve the same type of regulation and supervision."
