US Treasury Secretary Henry Paulson on Wednesday said the Federal Reserve should broaden its oversight that has long been given to commercial banks to investment houses.

"Perhaps most importantly, the Federal Reserve should have the information about these institutions it deems necessary for making informed lending decisions," said Paulson in a speech to the US Chamber of Commerce.

 US Secretary of Treasury Henry Paulson speaks after attending the President's Working Group on Financial Markets at the White House in Washington March 17, 2008. (Xinhua/Reuters Photo)

The Fed has voted unanimously to approve JP Morgan's takeover of Bear Stearns and agreed to provide an important multibillion US dollar financial lifeline for the deal. Bear Stearns's liquidity deteriorated recently.

Paulson said he fully supported that action but said it also raises important policy considerations about the oversight of investment houses.

"Recent market turmoil has required the Federal Reserve to adjust some of the mechanisms by which it provides liquidity to the financial system," he said, "Their creativity in the face of new challenges deserves praise, but the circumstances that led the Fed to modify its lending facilities raises significant policy considerations that need to be addressed."

Paulson suggested the Fed, the Securities and Exchange Commission and the Commodity Futures Trading Commission also continue to work to build a framework on this. "This collaborative process will necessarily have a strong focus on liquidity and funding issues," he said.

"The combination of these steps should provide the Federal Reserve with a structure and the information that it would need to make liquidity backstop loans during periods of market instability to nonbanks," Paulson added.

In terms of US economy, Paulson said "Our economy and our capital markets are flexible and resilient and I have great confidence in them."

"I am certain we will work through this situation and go on to new heights as we always do," he noted, adding "as we work our way through this turbulence, our highest priority is limiting its impact on the real economy."

(Xinhua News Agency March 27, 2008)