Fed and SEC to Compare Notes, Hank Paulson Blesses Union

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Today the Federal Reserve and the SEC signed the memorandum of understanding that would expand their information-sharing and cooperation along the lines of Henry Paulson's "Blueprint" for regulatory reform. The agreement is designed to bridge the gaps currently in the oversight structure, notably by allowing Bernanke to see the positions and leverage of financial firms.
In exchange, he gives Cox's SEC information on commercial banks' health as it impacts their operations in capital markets as well as general assessments of market stability to give the SEC better idea of whether there is trouble ahead.
Normally the Fed only has remit over commercial banks, although it gained a supervisory role over the firms for the duration that the Fed's window is open to them. With the MOU signed, Bernanke will have permanent access to information about all financial firms. This marks a significant step towards implementing Paulson's Blueprint, which gives the Fed primary oversight over financial firms. Sources familiar with the negotiations say that the agreement is probably the furthest reform possible without a new legislative mandate. The SEC seems to be very passive about the Fed moving in on its regulatory territory.
Hank Paulson appears quite happy about the final form of the MOU, declaring it "consistent with the long-term vision of Treasury's Blueprint for a Modernized Regulatory Structure." He comments that it "should help inform future decisions" about modernizing the labyrinthine regulatory structure. Despite the political impossibility of passing the Blueprint through Congress during his tenure, it looks as if Paulson has ensured its implementation anyway.

-senior Kremlinologist Andrew

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