Doubt cast on plan to revamp U.S. financial regulatory system

A plan by Treasury Secretary Henry M. Paulson Jr. to restructure the U.S. financial-services regulatory system may be slowed by congressional debate and the presidential election, the U.S. Office of Thrift Supervision’s director wrote in a letter to employees over the weekend.

Paulson is expected to unveil the plan today, but an executive summary of his proposal released Friday indicated he would urge combining the Office of Thrift Supervision, which regulates savings and loans, with the Office of the Comptroller of the Currency, which oversees national banks.

“Expect to see news stories and renewed questions about what the future will hold,” Office of Thrift Supervision Director John Reich wrote in the letter, dated Saturday. “The 20th anniversary of the OTS is next year. We can all expect -- despite predictions over the years to the contrary -- to be celebrating it.” Bloomberg News obtained the letter from Office of Thrift Supervision spokesman William Ruberry.

The agency, a Treasury division created in 1989 after the savings and loan crisis, oversees lenders including Calabasas-based Countrywide Financial Corp., the biggest U.S. mortgage lender, and Seattle-based Washington Mutual Inc., the largest savings and loan.

In his letter, Reich outlined obstacles in the way of Paulson’s plan, saying congressional debate and hearings could stretch into next year, when a new Congress and a new presidential administration “may well have their own priorities and agendas.”

A dozen similar efforts by presidential commissions, members of Congress and others over the last 60 years never “became reality,” Reich wrote.

Treasury spokeswoman Brookly McLaughlin declined to comment.

Reich pointed to a lack of industry support for restructuring the regulatory system, including opposition from the American Bankers Assn. to merging the Office of Thrift Supervision with another agency.

“More financial institutions have converted to a thrift charter in the last three years than have converted from a thrift charter to another charter type,” Reich said.

Paulson’s plan also calls for the merging of the Securities and Exchange Commission and the Commodity Futures Trading Commission.

Hal Scott, a professor at Harvard Law School who heads the Committee on Capital Markets Regulation, a group of executives and academics whose efforts Paulson has endorsed, said it would be “very hard” to implement any of the recommendations.

“The political reality is that the merits will get lost in the argument,” Scott said. “They recognize it won’t be done soon.”

House Financial Services Committee Chairman Barney Frank (D-Mass.) said in a statement Sunday that the plan went too far in reducing the role of the states and not far enough in giving new powers to the Federal Reserve over nonbank lenders.