Paulson in search for the ideal regulatory structure of financial markets

Ty secretary Paulson is giving an important speech about the "ideal regulatory structure" in financial markets. He emphasizes the importance to strike the right balance between market oversight and market discipline. In layman's words its difficult/impossible to police the insatiable desire for an easy bug on Wall Street. Though the current credit crisis demands action and some of his suggestions are a step in the right direction: e.g. regulation of the OTC derivatives market and tri-party repo system.
The whole speech is a must read and can been found here.

The following is from Paulson's own summary:
First, we should quickly consider how to most appropriately give the Federal Reserve the authority to access necessary information from complex financial institutions and the authority to act to mitigate systemic risk in advance of a crisis.

Second, we need to take several critical steps to make sure that market discipline continues to play the vital role it needs to play to keep our financial system in balance, as we work to ensure the system's stability. To reduce the perception and the likelihood that a complex financial institution is too interconnected to fail, steps are needed to strengthen our practices and financial infrastructure in the OTC derivatives market and in the tri-party repo system, and to provide greater certainty around the mechanics of winding down a failed institution that is not a federally insured depository institution.

Third, we must re-examine the emergency authorities of the Federal Reserve, Treasury and other financial regulators to ensure they are adequate to the roles they are expected to play in today's modern and multi-faceted financial system.



source: Remarks by Secretary Henry M. Paulson, Jr. on Economy
and Markets before Women in Housing and Finance
http://www.treas.gov/press/releases/hp1040.htm