WASHINGTON (AP) - President Barack Obama's plan to increase oversight of U.S. banks and other financial institutions met with skepticism on Capitol Hill on Thursday, where senators sharply questioned whether it was enough to prevent another economic meltdown.
The lack of a ringing endorsement suggests the proposal was headed for a rewrite by a Congress sensitive to voter frustration with the government's handling of the economy.
"They're very angry, and they are worried. And they are wondering who's looking out for them," Sen. Christopher Dodd, chairman of the Senate Banking Committee, said of his constituents.
In testimony before the panel, Treasury Secretary Timothy Geithner defended the proposal as the nation's best shot.
"It will be very hard, perhaps impossible, for any authority, any individual to anticipate and pre-empt all potential sources of future risk," Geithner said.
Lawmakers mostly agreed that change was needed to streamline federal regulation and fill in oversight gaps believed to have contributed to the housing and credit crises.
Several Democrats also lauded the proposed creation of a new consumer-protection agency that would police the market for deceptive business practices in such financial products as credit cards and mortgages.
But both Republicans and Democrats questioned whether the administration was putting too much faith in the Federal Reserve.
Under Obama's plan, the Fed would oversee institutions deemed so big or influential in the market that their failure could seriously damage the economy.
A council of federal regulators, including the Fed, would help monitor the market for risk. But the Fed would ultimately be accountable for ensuring companies don't make overly risky bets.
Several lawmakers have suggested tasking the council of regulators with the job and criticized the Fed for its role in the recent crisis.
"The reality is they (the Fed) had the knowledge and authority to address the mortgage problem long before it became a crisis, and they didn't act," said Sen. Robert Menendez, a New Jersey Democrat.
Other lawmakers questioned whether the Fed could become an effective super-regulator while retaining its role as the nation's central bank and setting monetary policy.
"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 of Alabama, the top Republican on the Senate panel.
Geithner said the Fed was the best option because it was the only institution with the capacity and expertise to monitor the "too big to fail" firms.
Giving the power to the council of regulators could delay action in a crisis, he added.
"You cannot convene a committee to put out a fire," he said.
Geithner also noted that the plan would strip the Fed of its role in overseeing consumer protections in setting up an agency focused solely on the mission.
However, it is likely that the Fed will mount a defense to keep its consumer oversight duties. Fed officials believe their oversight of mortgages, credit cards and other products fits well with their duties to regulate banks, and that they have the right mix of experts – economists and lawyers – already on hand to do the job.
Other details of the plan were also scrutinized. Democratic Sens. Charles Schumer of New York and Jon Tester of Montana pressed Geithner on why the administration did not seek greater consolidation of regulatory agencies.
"A multiplicity of regulators tends to produce less oversight overall," Schumer said.
Democratic leaders have committed to pushing through reform legislation by the end of the year.
The ambitious timetable – Dodd is simultaneously trying to shepherd an overhaul of the nation's health care system – has some members worried about missteps. Others lawmakers say Congress has no choice but to act quickly so as to prevent another crisis.
"If we mess this up, the unintended consequences for not only our economic recovery but the overall long-term financial stability for the world is really at stake," said Sen. Mark Warner, a Democrat from Virginia.
Associated Press Writer Jeannine Aversa contributed to this report.
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