Congress carves into Obama financial rule reforms

Tightening rules
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By Kevin Drawbaugh
WASHINGTON (Reuters) - 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 powers to police broad risks in the economy.
In addition to handling monetary policy, under the Obama plan the Fed would regulate "systemic risk" and try to prevent future financial crises, working with an inter-agency council.
"The Federal Reserve system was not designed to carry out the systemic risk oversight mission the administration proposes to give it," Senator Richard Shelby, the top Republican on the U.S. Senate Banking Committee, said at a hearing.
Concluding that the Fed is better qualified than any other government agency to handle such a job "represents a grossly inflated view of the Fed's expertise," Shelby said, reflecting the rapid spread of 'Fed fatigue' on Capitol Hill.
A day after President Barack Obama unveiled his plan, Treasury Secretary Timothy Geithner was defending it in testimony before the banking committee in the first of more than a dozen hearings before Congress by mid-July.
Other points of contention emerged during the session, including a proposal for establishing a consumer financial product safety agency and the administration's decision not to pursue more streamlining of bank supervisors.
The likelihood of the Obama plan emerging intact from Congress is remote, said William Donaldson, former chairman of the U.S. Securities and Exchange Commission, in an interview.
He called the plan "pretty positive, not too radical ... Now it becomes a matter of everybody else throwing their oar in. Clearly there are some differing opinions ...
"I think there's a feeling that maybe too much is being thrown into the Federal Reserve," he said. "I find it hard to believe they'll get anything done before year-end."
Geithner urged Congress to act quickly on regulatory reform in response to the crisis, which has focused public and government attention worldwide on oversight of banks and markets.
"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," he said.
BIGGEST CHANGES SINCE 1930S
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 Obama plan, under development for six months, will require legislative action from Congress. The president wants to sign legislation into law before the end of the year, an ambitious schedule as other pressing issues, including healthcare reform, are competing for Congress' time.
In the House of Representatives, where Democrats are in firm control, quick action is expected. But the outlook is unclear in the Senate, where the balance of power is held by a handful of moderates, some of them banking committee members. Continued...
Source: Reuters