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Long Fight Ahead for Treasury Blueprint

A significant loser in the blueprint appears to be the SEC, which would be combined with the Commodity Futures Trading Commission. It would be asked to give financial markets greater freedom to police themselves and streamline the process for approving financial products such as complex futures contracts. Right now, many financial firms and hedge funds get such products approved by other market regulators or trade them on foreign markets because of the bureaucracy of the SEC, Treasury officials have said.

SEC Chairman Christopher Cox said the regulatory system needs to be streamlined.

"Recent events have provided further evidence, if more were needed, that financial services regulation in the United States needs to be better integrated among fewer agencies, with clearer lines of responsibility," Cox said in a statement yesterday. "The proposed consolidation of responsibility for investor protection and the regulation of financial products deserves serious consideration as a way to better address the realities of today's markets."

Former SEC chairman Harvey L. Pitt, a Republican who resigned in 2002, said the blueprint offered a common-sense approach.

"The SEC's style of regulation -- mostly after-the-fact enforcement action -- no longer makes sense, if it ever did," Pitt said. "The existence of separate agencies to monitor different entities that all perform the same functions is no longer workable."

The SEC's inspections team could be stripped of much of its power if it ends up ceding its examinations to the Fed. The unit, known as the Office of Compliance Inspections and Examinations, has been targeted in recent months by industry and has been the focus of criticism from Republican commissioners.

While the SEC would lose some of its authority, the Fed would gain almost unprecedented power.

Yesterday, the Fed indicated openness to the Treasury Department's plan, without endorsing its specifics. A spokeswoman for the central bank called it a "timely and thoughtful analysis" and an "important first step in the complex task of modernizing our financial and regulatory architecture."

John M. Reich, director of the Office of Thrift Supervision, discounted the importance of the blueprint, which calls for his agency to be merged with the Office of the Comptroller of the Currency to streamline the regulation of similar types of financial firms. In an e-mail to his employees, which was obtained by The Washington Post, Reich wrote that "you might be wondering whether financial services restructuring is an idea whose time has finally come. I don't think so."

Reich suggested that the current arrangement, of multiple banking regulators, offers important checks and balances. "When the Treasury Department issues its recommendations, expect to see news stories and renewed questions about what the future will hold," Reich wrote. "Take note of the fanfare, then look back to [past failed efforts to restructure financial regulation] and resume the important work that you continue to do so well."

Staff writer Lori Montgomery contributed to this report.

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