Treasury Secretary Henry Paulson has proposed the broadest overhaul of U.S. financial regulation since the Great Depression, saying the system needs to be better prepared for “inevitable market disruptions,” Bloomberg reported

“Our major financial services companies are becoming larger, more complex and more difficult to manage,” Paulson said. “The real threat to market stability is below ground, at the root level where the health of financial firms is intertwined.”

Paulson’s 218-page “Blueprint for Regulatory Reform,” commissioned two months before credit markets seized up in August, said more rules aren’t “the answer” to the current period of turmoil. Paulson said the structure of regulating banks, securities firms and insurance companies is outmoded, and the Federal Reserve should expand its oversight of financial service providers beyond banks.

The proposal includes suggestions such as merging the Securities and Exchange Commission, traditionally the main regulator of Wall Street firms, with the Commodity Futures Trading Commission; the Fed sharing authority over banks, securities firms and insurers in monitoring corporate disclosures, writing rules and stepping in to prevent economic crisis; and making a distinction between the Fed’s “normal” lender-of-last-resort discount window to help banks meet short-term funding needs and “market stability” lending to help stave off funding shortages and panics. Most of Paulson’s proposals would require congressional approval.