Speaking at the Women in Housing & Finance's annual meeting in Washington, D.C., Treasury Secretary Henry Paulson said that the U.S. may have to offer more liquidity to more institutions in the future.

"We have now learned that a wider range of institutions can potentially threaten the stability of the financial system. It seems clear that in the future the central bank might need to make liquidity available to a broader range of financial institutions under certain extraordinary circumstances," Paulson said.

Paulson said that the U.S. was facing strong headwinds in energy prices, which have the potential to lengthen the slowdown. Paulson acknowledged that the stimulus has helped the economy and the focus should switch to sound regulation.



Paulson said that a regulator would be a substantial tool to help ease housing tensions. He added that certain parts of the market are under stress and that the reevaluations create a challenging market.

Paulson explained that the market conditions will improve but not in a straight line, adding that the U.S is on the right path to strengthening the economy.

Paulson outlined his support for the Federal Reserve's bailout of Bear Stearns. Paulson added that market discipline must constrain risk-taking and that the SEC and Federal Reserve should work to formalize a role as marked monitors.

Paulson also said that a market stabilizer can create a moral hazard for the banking system and there is a need to reexamine the roles of federal, Treasury and financial regulator to ensure they are adequate for the role they play. "I know from experience that presumed government backstops have the potential to change behavior," said Paulson, who was the former CEO of Goldman Sachs.

By Steve Stecyk and edited by Nancy Girgis