Obama's reform faces fight in Congress

By Thomas Ferraro

WASHINGTON (Reuters) - President Barack Obama's proposed financial regulatory overhaul could face big changes in Congress, where over the years members of both parties have permitted lax controls blamed for the U.S. economic meltdown.

Democratic and Republican lawmakers found fault with at least some of the ideas put forward in the president's proposal, which seeks to clamp down on the country's biggest financial firms in the hope of preventing another economic crisis.

The biggest sticking point may be the role of the Federal Reserve, the U.S. central bank. Obama envisions the Fed overseeing the largest financial firms to ensure that they are not taking excessive risks that could destabilize the economy.

But several top Democrats and Republicans questioned whether that would vest too much authority in an agency that has already drawn the ire of many lawmakers for its role in the costly bailouts of Bear Stearns and AIG.

"There's not a lot of confidence in the Fed at this point," Senator Christopher Dodd, chairman of the Senate Banking Committee, said on Wednesday.

Senator Richard Shelby, the committee's ranking Republican, said the Fed had "utterly failed" as a regulator and putting it in charge of regulating systemic risk would be piling on too many responsibilities.

Still, Obama's fellow Democrats, who control Congress, vowed to move ahead on legislation that aims to reduce risks and increase stability in financial markets rocked by scandals, incompetence and corporate failures.

It was unclear how quickly they could act with a number of lawmakers raising concerns and promising change.