Lawmakers warned Treasury Secretary Timothy F. Geithner on Thursday that President Obama’s plan to greatly expand the Federal Reserve’s powers to oversee financial markets might overburden the central bank and lead to future problems on Wall Street going unchecked.
Members of the Senate Banking, Housing and Urban Affairs Committee generally agreed with Mr. Obama’s push announced Wednesday to create an oversight agency to protect consumers and investors from unscrupulous deals, but the senators expressed unease with some of the details.
The secretary’s appearance on Capitol Hill came a day after the Obama administration unveiled sweeping regulatory reforms of the nation’s financial system - a plan widely criticized on Wall Street and by leading financial industry lobbies.
The committee’s top Republican, Sen. Richard C. Shelby of Alabama, said he was concerned about giving more duties to the Federal Reserve, which already sets monetary policy and regulates banks among other functions.
“I do not believe that we can reasonably expect the Fed or any other agency to effectively play so many roles,” he said.
Mr. Shelby added that because Congress has limited oversight control over the central bank, it would be unwise to hand it additional responsibilities.
New York Democratic Sen. Charles E. Schumer, whose state contains the nation’s leading financial hub, said the administration’s plan should include greater consolidation of regulatory agencies.
“A multiplicity of regulators tends to produce less oversight overall,” Mr. Schumer said.
But Mr. Geithner said that because the Fed already supervises and regulates bank holding companies, including all major U.S. commercial and investment banks, it makes sense to convert the agency into a super-regulator that would oversee financial firms deemed too big or too critical to the economy to fail.
“Our plan gives a modest amount of additional authority - and accountability - to the Fed to carry out that mission,” he said.
Mr. Geithner dismissed the idea of creating a council of regulators - being pushed by some on Capitol Hill - saying it wouldn’t be able to respond as quickly to financial emergencies as the Fed.
“You don’t convene a committee to put out a fire,” he said.
The administration has proposed a Financial Services Oversight Council that would bring together the heads of all major federal financial regulatory agencies. The council’s goals would be to “fill gaps in the regulatory structure where they exist” - not to serve as a “first-responder.”
The secretary also tried to soothe concerns about overtaxing the Fed, noting that the administration’s plan also calls for moving consumer protection duties from the central bank and other regulators to a new independent agency devoted solely to consumer protection.
“Before this crisis many federal and state regulators had authority to protect consumers, but few viewed it as their primary charge,” he said.
Committee Chairman Christopher J. Dodd, Connecticut Democrat, called the creation of the consumer protection agency “simple common sense.”
“We don’t allow toy companies to sell toys that could hurt our kids,” he said. “Why should an unscrupulous lender be allowed to dupe a borrower into a loan the lender knows can’t be repaid?”
Mr. Dodd lashed out at the financial industry for its criticism of the proposed consumer protection agency.
“The idea that you’re going to, first of all, attack the very clients and customer who depend upon you everyday is not the place to begin,” he said.
It’s uncertain how soon Congress will move on Mr. Obama’s plan, as lawmakers face a crowded agenda topped by health care reform, energy policy and the Senate confirmation hearings for Supreme Court nominee Sonia Sotomayor.