WASHINGTON — With opposition increasing to key parts of the Obama administration's financial regulatory overhaul from industry, regulators and some lawmakers, Treasury Secretary Timothy Geithner told Congress on Friday it was imperative to pass the entire package this year or risk a repeat of the economic crisis.
"The president decided we needed to move quickly while the memory of the searing damage caused by this crisis was still fresh and before the impetus to reform faded," Geithner told the House Financial Services Committee. "There is a lot of resistance and opposition, and if we wait and we try to do it piecemeal, it's going to be much harder for this committee to find consensus on something sufficiently strong."
The committee chairman, Rep. Barney Frank, D-Mass., said this week he was delaying consideration of one of the most controversial parts of the plan — a proposed Consumer Financial Protection Agency — because of strong industry opposition. Frank had wanted the committee to vote on the proposal next week, but has put that off until September.
Another key part of the Obama administration's plan, to give the Federal Reserve power to monitor the entire financial system for major risks, also is running into opposition on Capitol Hill. Some Republicans and Democrats oppose granting the Fed more power, charging that it failed to foresee the current crisis. They also worry the Fed is becoming too powerful because of the emergency lending powers it has used to try to stabilize the economy.
"I must reiterate my deep and profound concerns about the selection of the Federal Reserve as the primary entity in charge of systemic risk," said Rep. Paul Kanjorski, D-Pa. "I believe that we need someone with real political accountability in this role, like the treasury secretary."
Geithner forcefully defended the plan the administration announced last month to overhaul the financial regulatory system, saying the current framework failed to protect consumers and the country.
"We have an opportunity to bring about fundamental change to our financial system, to provide greater protection for consumers and for businesses," Geithner said. "We share a responsibility to get this right and to get this done."
Geithner directly addressed concerns that the new consumer agency would limit innovative financial products and that it did not make sense to take oversight in that area away from banking regulators.
"We can all agree, I believe, that in the years leading up to the current crisis, our consumer protection regime fundamentally failed. It failed because our system allowed a range of institutions to escape effective supervision," Geithner said. "It failed because our system was fragmented … creating opportunities for evasion. And it failed because all of the federal financial services regulators have higher priorities than consumer protection."
Although Fed Chairman Ben S. Bernanke and Federal Deposit Insurance Corp. Chairwoman Sheila Bair generally endorse the regulatory reform plan, they have raised questions about certain aspects that involve giving up some of their powers, adding to the hurdles the plan faces in Congress.
Geithner said it was understandable that agencies "aren't enthusiastic" about giving up some of their authority. But he asked Congress to keep such turf defense in mind when it weighs the financial overhaul.
"They are doing what they should, which is to defend the traditional prerogatives of their agencies," he said.