U.S. consumers need financial watchdog - Senator

WASHINGTON (Reuters) - Sen. Jack Reed, chairman of the Senate securities subcommittee, left no doubt on Tuesday about his support for the Obama administration's controversial proposal to create a Consumer Financial Protection Agency.

"The notion that we have to have a strong ... agency to protect consumers is an integral part of the reform and it will be carried out," the senior Democratic lawmaker from Rhode Island, a key player on financial issues, said in a Reuters Television interview.

The U.S. Chamber of Commerce, the largest U.S. business lobbying group, and other corporate interests oppose President Barack Obama's plan for a new watchdog on consumer financial products, ranging from credit cards to mortgages.

The proposal is part of a sweeping plan to modernize the antiquated U.S. financial oversight system that was unveiled last week by Obama in response to a severe banking and capital markets crisis, now more than a year long.

"I think definitely you have to have a consumer protection agency," Reed said. "Some of the important issues are: 'Who will write the regulations? Will they be written exclusively by the agency or will there be input by other regulators?' ... They have to work out how these regulations will be enforced.

"The idea is sound. It just has to be fleshed out," he added.

The U.S. House of Representatives Financial Services Committee will hold a hearing on Wednesday on the proposal, which is strongly backed by Elizabeth Warren, chairman of the Congressional Oversight Panel of the U.S. bank bailout fund. Warren will be a witness at the House committee hearing.

Reed said it will be possible for Congress to enact all or some of Obama's program into law before the end of 2009. Analysts and lawmakers have said it is highly unlikely that the president's proposals will get through Congress unchanged.

ACTION SEEN IN SENATE

"It might be a long year, but I think we can do it," Reed said. "The House is beginning to move ... to start the process. We can and we will quickly in September get down to the hearings and marking up the bill and making the changes."

Reed's endorsement of the consumer protection agency proposal came just days after Obama and Connecticut Sen. Christopher Dodd, chairman of the Senate Banking Committee, made similar comments and criticized business interests on the issue.

The chamber last week said in a statement: "We don't need a stand-alone consumer protection agency that cannibalizes regulatory expertise, adding yet another regulatory layer and additional regulatory gaps."

Reed on Monday chaired a hearing looking at another aspect of the Obama plan -- regulating the over-the-counter derivatives market, including credit default swaps.

In the interview, Reed said: "There's going to be a major effort to get as many of these products as possible on exchanges and clearinghouses ... Credit default swaps, almost by definition, are the ones that are hardest to get on the exchanges. They're trying to standardize them now ... We hope at the end of the day that the number of credit default swaps that are not uniform, not standardized, will be very small."

On the market, he said: "The dividing line is going to have to be drawn in consultation with agencies. But if it's a securities-related product, it would be governed by SEC. Those that are commodity-related or futures contracts, by CFTC."

As for another Obama proposal to give the Federal Reserve new duties to regulate systemic risk in the economy, Reed said: "The Fed has to demonstrate the changes that they'll make in their operating approach so they can be a systemic regulator. It would be, I think, unfortunate to give them the authority without seeing how they're going to use it."