WASHINGTON, July 22: US Treasury Secretary Henry Paulson warned on Tuesday that more time will be needed to get past the current financial turmoil and called for better regulation to prevent a recurrence.

“Working through the current turmoil will take additional time, as markets and financial institutions continue to reassess risk,” Paulson said in a speech prepared for delivery in New York.

“Our markets won’t make progress in a straight line and we should expect additional bumps in the road,” he added, underlining that “until the housing market stabilises further we should expect some continued stresses in our financial markets.”

But the US banking system is “sound” and the fundamentals of the economy are “strong,” he said.

Paulson said there were two priorities: “better regulation through a more effective updated regulatory structure on the one hand and market discipline to limit moral hazard on the other.”

Market discipline “plays an enormous role in curtailing excessive risk-taking,” he said, noting that it should not be completely executed by regulators.

However, the current financial regulatory structure “does not adequately reflect” the new reality of a financial services industry that now has non-bank financial institutions playing a significantly greater role.

“We need to get to the point where large, complex financial institutions are not perceived to be too big or too interconnected to fail,” he said.

The Treasury chief called for “additional powers to manage the resolution, or wind-down, of large non-depository financial institutions, such as larger hedge funds, so as to limit the impact of a failure on the broader financial system.”

Paulson also underscored the importance of the government-sponsored, shareholder-owned mortgage finance firms Fannie Mae and Freddie Mac, which are under pressure from the worst housing slump in decades.—AFP