WASHINGTON - President Obama’s plan to transform the Federal Reserve into a super-regulator ran into skepticism Thursday from lawmakers who worry that the central bank is not the best suited to keep an eye on firms deemed so big and influential that their demise could hurt the economy.
Members of Congress voiced misgivings as Treasury Secretary Timothy Geithner began a marathon day of selling Obama’s financial regulatory plan to give the Fed more authority, create a new consumer protection agency and bring unregulated sectors of the financial markets under government oversight.
“I do not believe that we can reasonably expect the Fed or any other agency to effectively play so many roles,” said Sen. Richard Shelby, R-Ala., noting that it also sets monetary policy, regulates banks and handles an array of other functions.
Some lawmakers have proposed that the job of overseeing large institutions be left to a council of regulators, not a single agency.
Geithner anticipated that point in his testimony before the Senate Banking Committee, saying in his opening remarks: “You cannot convene a committee to put out a fire.”
Committee Chairman Christopher Dodd, D-Conn., also raised questions about the use of the Fed for such an overarching task over the financial system. But he applauded the administration for including a new agency to protect consumers in their banking transactions.
Dodd said regulators must be empowered and that gaps in oversight should be eliminated. Financial institutions that pose a threat to the economy shouldn’t go unchecked, he said, and there should be more transparency in certain markets.
But Dodd blamed the Fed for “dropping the ball” on consumer protections.
Geithner said that in creating the consumer protection agency, the administration was taking power away from the Fed even as it was adding to its authority.
“That is a substantial diminishment of authority, preoccupation and distraction,” he said.
Geithner also was scheduled to testify before the House Financial Services Committee Thursday afternoon.
Besides empowering the Federal Reserve to oversee the largest and most influential financial firms, Obama wants to create a council of federal regulators, chaired by the treasury secretary, to monitor risk across the broader market but not have authority over large financial institutions. The new consumer protection agency would be created to prevent deceptive practices by such companies as credit card lenders and mortgage brokers.
The plan comes amid public skepticism about the way Obama’s handling some aspects of the economic crisis. Sixty percent of Americans don’t believe the president has a strategy for dealing with the budget deficit, and almost half disapprove of his handling of problems facing the auto industry, according to a New York Times/CBS News poll published Thursday.
Still, 57 percent approve of the president’s overall handling of the economy, according to the telephone survey of 895 adults contacted Friday through Tuesday.
Obama’s lofty job approval rating slipped a bit in a new Wall Street Journal/NBC News poll. The poll found 56 percent approved of the job Obama was doing, down from 61 percent in April.
Obama’s financial overhaul proposal was well-received among Democrats on Capitol Hill, who said it would prevent another round of bank bailouts and protect consumers from predatory lending practices.
“We regard this as very pro-market,” said Rep. Barney Frank, D-Mass., who chairs the House Financial Services Committee. “Unless you have investors that are well-protected, you don’t have a market.”
But a swift legislative endorsement of the plan could be difficult. Dodd is leading a major overhaul of the nation’s health care system and the Senate also faces a debate on whether to confirm Supreme Court nominee Sonia Sotomayor. In addition to the Senate’s packed schedule, several lawmakers, including Dodd, have questioned whether Obama’s proposal relies too heavily on the Federal Reserve and expressed concern that the Fed, as an independent agency, doesn’t answer to Congress.
“It’s certainly worthy of a thorough and full-throated debate and discussion as to whether or not that’s a better alternative than vesting the Fed,” Dodd told reporters after Obama’s speech on Wednesday. “There’s not a lot of confidence in the Fed at this point.”
Geithner told reporters at a briefing that the administration had looked at a range of alternatives to giving the Fed expanded powers and had come to the conclusion that “we do not believe there is a plausible alternative.”
House Republicans said Obama’s plan would go too far and bury the market in unnecessary regulation.
Senate Republicans were less dismissive but stopped far short of endorsing the proposal. Shelby and Sen. Judd Gregg, R-N.H., questioned aspects of the plan but said they hoped to work with Democrats to make it stronger.