Schumer also complained that the administration proposal did not appear to address the full spectrum of complex new financial securities, including so-called collateralized debt obligations, or CDOs, which repackage assets such as mortgages for sale to investors.
Losses on such securities have cost Wall Street firms billions of dollars and made them and other institutions reluctant to lend money. That in turn has fueled the credit crunch that is squeezing the economy.
"Very complex financial instruments have evolved in recent years, like CDOs and credit-default swaps, which pose potential problems in terms of systemic risk," Schumer said. "The Treasury Department should address these issues as well."
In the short term, Paulson's plan proposes:
Creating a Mortgage Originations Commission that would oversee the home-loan industry, making sure that state-level licensing conformed with a set of new federal minimum standards.
Consideration of what kind of regulation should be put in place for investment banks that wish to borrow directly from the Federal Reserve.
Paulson has said previously that, although the Fed this month agreed to make loans to securities firms on a temporary, emergency basis, those institutions would have to be more heavily regulated if they wanted permanent access to Fed lending.
In the medium term, Paulson proposes:
Eliminating the distinction between thrifts and banks under federal law.
Bringing all state-chartered banks under federal supervision, either through the Federal Reserve or the Federal Deposit Insurance Corp.
Federal oversight of insurance companies.
Integrating oversight of the futures and securities markets by combining the Securities and Exchange Commission with the Commodity Futures Trading Commission.
Ultimately, the administration's proposal envisions paring down financial market oversight to just three regulators: a "market stability" regulator based on the Federal Reserve; a "business conduct regulator" based on the current SEC and CFTC; and a "prudential oversight" regulator focused on depository banks, encompassing the current Office of the Comptroller of the Currency and the Office of Thrift Supervision.
A major Wall Street trade group, the Securities Industry and Financial Markets Assn., said in reaction to Paulson's blueprint that there was "universal agreement that it is time to modernize and revitalize the current system" of regulation.
"The present regulatory framework was born of Depression-era events and is not well suited for today's environment where billions of dollars race across the globe with the click of a mouse," the group said.
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maura.reynolds@latimes.com
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Staff writer Tom Petruno in Los Angeles contributed to this report.
