Redefined Fed Alarms Congress

By Neil Irwin and Binyamin Appelbaum
Washington Post Staff Writers
Friday, June 19, 2009

The Federal Reserve, which has been at the center of the government rescue of the financial system, is now on the hot seat, with a debate on Capitol Hill emerging over its responsibility for the crisis and its proper role in preventing such events in the future.

Lawmakers are simultaneously annoyed that the Fed did not do more to rein in the bad lending and other financial excesses that led to the financial crisis and recession, and wary of the Fed's aggressive steps over the past two years to combat them. The criticism of the Fed is increasingly loud, bipartisan and from both chambers of Congress.

The Obama administration announced Wednesday that it wants to give the central bank more power to oversee risks to the U.S. economy even as it strips the Fed of power to protect consumers and limits its authority to make emergency loans. But the expansion of its role is already proving to be the most controversial element of the president's plan to revamp financial regulation.

As Treasury Secretary Timothy F. Geithner testified before the Senate Banking Committee yesterday about the administration's sweeping proposal for financial regulation overhaul, senators repeatedly returned the discussion to provisions involving the Fed. Geithner envisions giving the central bank the authority to directly oversee any firm that is large and complex enough that its activities could endanger the U.S. economy.

(More here.)