Congress carves into Obama's financial reforms

By Kevin Drawbaugh

WASHINGTON (Reuters) - Senior U.S. lawmakers launched an assault on Thursday on the centrepiece of the Obama administration's financial reform plan -- giving the Federal Reserve new powers to police broad risks in the economy.

In addition to handling monetary policy, under the Obama plan the Fed would regulate "systemic risk" and try to prevent future financial crises, working with an inter-agency council.

"The Federal Reserve system was not designed to carry out the systemic risk oversight mission the administration proposes to give it," Senator Richard Shelby, the top Republican on the U.S. Senate Banking Committee, said at a hearing.

Concluding that the Fed is better qualified than any other government agency to handle such a job "represents a grossly inflated view of the Fed's expertise," Shelby said, reflecting the rapid spread of 'Fed fatigue' on Capitol Hill.

A day after President Barack Obama unveiled his plan, Treasury Secretary Timothy Geithner was defending it in testimony before the banking committee in the first of more than a dozen hearings before Congress by mid-July.

Other points of contention emerged during the session, including a proposal for establishing a consumer financial product safety agency and the administration's decision not to pursue more streamlining of bank supervisors.

The likelihood of the Obama plan emerging intact from Congress is remote, said William Donaldson, former chairman of the U.S. Securities and Exchange Commission, in an interview.

He called the plan "pretty positive, not too radical ... Now it becomes a matter of everybody else throwing their oar in. Clearly there are some differing opinions ...