U.S. to Revamp Credit Rules, Drawing From Crisis Lessons

The nation's top economic policy makers plan to release today their broadest blueprint yet for avoiding a recurrence of the credit crunch now threatening the economy Mr. Paulson told The Wall Street Journal that the recommendations of the President's Working Group on Financial Markets, which he leads, include strengthening state and federal oversight of mortgage lenders and brokers. The group will also recommend implementing what he termed "strong nationwide licensing standards" for mortgage brokers, a move that will probably require legislation. The group also will propose directing credit-rating firms and regulators to differentiate between ratings on complex structured products and conventional bonds. In addition, it wants rating firms to disclose conflicts of interest and details of their reviews and to heighten scrutiny of outfits that originate loans that are enveloped by various securities. Another recommendation from the panel is to push issuers of mortgage-backed securities to disclose more about "the level and scope of due diligence" and about the underlying assets of the securities. The panel is also seeking disclosure of whether "issuers have shopped for ratings" -- that is, have had to go to more than one credit-rating firm before getting the triple-A stamp of approval. And the panel will urge global bank regulators to revisit the latest version of bank capital requirements, known as Basel II for the Swiss city where they were negotiated, so that banks that take on risks hold sufficient capital. The panel also wants regulators to complete updated standards for how banks manage liquidity. Many of the recommendations parallel those made by others, but the endorsement by top officials carries significant weight. They reflect a consensus of the Working Group, which includes the heads of the Federal Reserve Board, the Federal Reserve Bank of New York, the Securities and Exchange Commission and the Commodity Futures Trading Commission. Each agency has considerable sway over banks, investment houses and investors.