U.S. Treasury Secretary Henry Paulson, in Europe to meet with regulators in London and Paris, said they shouldn’t necessarily overreact to the credit crisis by imposing additional regulations, Dow Jones reports.

Paulson said the credit crisis and investment firms’ lower appetite for risk will eventually pass, and that in the meanwhile, regulators shouldn’t impose tighter requirements on financial services firms because that could stunt innovation.

“There is great vigilance now on the part of regulators, in terms of staying close to markets, as we work our way through this situation,” Paulson said. “We want to get the balance right. We don’t want to rush to judgment and overreact.”

Paulson said he “is just leaning against the wind a little bit, because I don’t want to overreact in ways that penalize the global economy for years to come.”

Further, Paulson said, the credit crisis should not necessarily result in tighter hedge fund regulation. “I don’t believe anything thinks hedge funds precipitated this period of turbulence,” he said. “It really came from mortgage origination. The issues we are looking at most closely stem from mortgage origination in the U.S.”

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