BY KEVIN DRAWBAUGH
WASHINGTON – Senior U.S. lawmakers launched an assault on Thursday on the centerpiece of the Obama administration’s financial reform plan — giving the Federal Reserve new power to police broad risks in the economy.
“I do not believe we can reasonably expect the Fed or any other agency to effectively play so many roles,” said Sen. Richard Shelby, the top Republican on the Senate Banking Committee.
A day after President Barack Obama unveiled the plan, Treasury Secretary Timothy Geithner was on the defensive as he testified before the committee, fielding questions about giving the Fed authority to be the “systemic risk” regulator.
Geithner urged Congress to act fast on regulatory reform. “We may disagree about the details, and we will have to work through those issues. But ordinary Americans have suffered too much; trust in our financial system has been too shaken; our economy has been brought too close to the brink for us to let this moment pass,” Geithner said.
Congressional debate got under way with little reaction from Wall Street. The S&P 500 index rose less than 1 percent at midday.
Other contentious items in the plan emerged, including a proposal to form a federal agency on consumer financial product safety, and the administration’s decision not to pursue more aggressive streamlining of bank supervisors in its plan.
In response to a severe banking and capital markets crisis, Obama is proposing the most far-reaching changes in U.S. financial regulation since the 1930s, mirroring a similar effort already under way in the European Union.
Much of the U.S. plan, under development for six months, will require legislative action from Congress, where more than a dozen hearings are set between now and mid-July.
Obama wants to sign legislation into law before the end of the year, an ambitious schedule as other pressing issues, such as healthcare reform, are competing for Congress’ time.
The first of many hearings got under way, with Geithner seated alone at a long, black-draped table, facing committee members who are likely to decide the fate of a plan that he, more than anyone else, has personally come to represent.
Criticized early in his tenure for being too timid under questioning from lawmakers, Geithner was assertive and confident on Thursday, asking Sen. Christopher Dodd, the Democratic chairman of the committee, for more time to make key points.
‘COP ON THE BEAT’
Dodd warned the financial industry against attacking the proposal for setting up a consumer financial products safety agency.
“This is a very simple, common-sense idea … Let’s put a cop on the beat,” Dodd said. “Stronger consumer protection, I believe, would have stopped this crisis before it started.”
Dodd’s comments were an important show of support for a key component in the administration’s wide-ranging program.
A merger of the Securities and Exchange Commission and the Commodity Futures Trading Commission — seen as vital to effective reform — was not proposed, though some critics had pushed for it.
Other members of the committee, including Republican Sen. Jim Bunning of Kentucky, questioned expanding the Fed’s power to cover systemic risk, faulting the central bank’s past record, although Democratic Sen. Charles Schumer said designating the Fed for the job was the “best answer.”
Shelby, of Alabama, said the Fed could be stretched too thin by taking on the job, adding that the central bank’s structure was not suited to being a big regulator, and that the Fed has been insufficiently accountable to Congress.
He questioned whether the Fed could have detected and averted problems like last year’s collapse of former Wall Street giant Lehman Brothers Holdings Inc or the taxpayer bailout of American International Group Inc.
“Recent events have clearly demonstrated that the structure is not appropriate for a federal bank regulator, let alone a systemic regulator,” Shelby said.
Dodd, like Shelby, has been a consistent critic of the Fed. He said he has not made up his mind on assigning systemic risk regulation duties. “I’m open on the issue,” he said.
The U.S. House of Representatives Financial Services Committee will host Geithner at a hearing later Thursday.
Alister Bull, Mark Felsenthal, Emily Kaiser, David Lawder, Patrick Rucker, Karey Wutkowski contributed to this report.
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