Flexibility Is Signaled on Financial Oversight

WASHINGTON -- Treasury Secretary Timothy Geithner suggested Friday that the Obama administration would agree to revise parts of its plan to overhaul financial-market regulation, moving to protect a key initiative even as the White House wrestled to keep its health-care initiative on track.

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FDIC Chairman Sheila Bair, center, and U.S. Comptroller of the Currency John Dugan, right, listen to Fed Chairman Ben Bernanke, left, testify during a hearing of the House Financial Services Committee Friday.

The effort to revamp financial regulation has lost considerable momentum since it was proposed in June, despite President Barack Obama's call for quick action. It has been hindered by political and industry criticism and overshadowed by a larger political debate over health care. It has also ignited a turf war between federal agencies that stand to gain or lose significant authority.

Mr. Geithner sought to defend the plan at a hearing before the House Financial Services Committee Friday, saying that while it had triggered "heated debate" there "should be no disagreement on the need to act."

The sweeping proposal would give the Federal Reserve expanded authority to oversee the country's largest financial firms. It would also create a new regulator for mortgages and credit cards, give the government the power to take over and break up large faltering companies, and toughen oversight of credit derivatives and hedge funds, among other things.Obama administration officials say flaws in the current regulatory structure put the entire financial sector at risk last year. Mr. Obama has called overhauling financial-market supervision a top priority, one that is critical to rebuilding confidence in the U.S. economy.

Mr. Geithner didn't detail specific areas where the administration would be willing to compromise, but the tone of the hearing suggested it was extremely unlikely lawmakers would approve anything without significant changes.

The committee has already delayed a vote on the creation of a financial consumer-protection agency until September, which could make it harder for Congress to vote on the entire package by the end of the year as originally envisioned by the administration.

Key policy makers are also divided over how best to revamp the regulatory framework, further complicating the effort.

Federal Reserve Chairman Ben Bernanke told the committee on Friday that there should be more "accountability" in bank regulation, essentially supporting the administration's plan to give the Fed power over financial markets.

Federal Deposit Insurance Corp. Chairman Sheila Bair countered that lawmakers should spread oversight by creating a financial-services council with "broad authority and responsibility."

Comptroller of the Currency John Dugan said he had "serious concerns" about the proposed financial consumer-protection agency, which would regulate mortgages and credit cards.

Mr. Geithner told lawmakers the criticism from regulators should be viewed as efforts to defend their agencies' "traditional prerogatives."

He tried to paint a picture of a regulatory structure in need of repair, saying there was "a lot of dumb regulation in our country" and "a lot of examples of practices that we should not have tolerated."

Many lawmakers at the hearing picked apart components of the plan, with many Republicans questioning whether the consumer-protection agency would simply make it harder for people to obtain credit because banks would no longer offer certain products.

Meanwhile, Pennsylvania Democratic Rep. Paul Kanjorski challenged the idea of centralizing too much power in the Fed and said certain powers should instead be focused in a more politically accountable entity such as the Treasury Department.

Democrats supportive of the consumer-protection agency hope to rally support for that part of the plan in August by enlisting labor unions and consumer groups to bolster support.

Rep. Mel Watt (D., N.C.), was one of the few lawmakers who voiced broad support for the plan and said the fact that most people don't like certain parts of it could mean that the proposal is appropriately balanced. link....