Treasury Secretary Timothy Geithner has urged Congress to approve a financial package of regulatory system reform supported by President Barack Obama by the end of the year.  Geithner and Federal Reserve Bank Chairman Ben Bernanke testified with other officials to the House of Representatives Financial Services Committee:

House and Senate committees have worked for months to move financial system reform forward, including steps to intensify supervision of financial institutions, strengthen existing regulation, and create a Consumer Financial Protection Agency.

Under the proposal the House Financial Services Committee is developing,  the Federal Reserve -- the U.S. central bank -- would gain additional powers to regulate risk at large companies that could trigger another financial crisis if they collapse.

Regulatory reform is a major priority for President Obama as part of his administration's response to the financial crisis he inherited from the Bush administration.

Treasury Secretary Geithner said there is an urgent need to overhaul what he called an outdated and ineffective regulatory system that helped create the financial crisis. He said a new consumer protection agency would have broad authority to write and enforce new rules on financial products,
"We need to create an agency that restores confidence of consumers and the confidence of financial investors with the authority to prevent abusive and unfair practices while at the same time promoting innovation and consumer access to financial products," he said.

Though majority Democrats had hoped to get a financial reform package to a vote by August, the committee chairman, Democrat Barney Frank, now says he expects to finalize consumer protection and other measures by September.

Many House and Senate Republicans have criticized the reform proposals, asserting that some would have the effect of discouraging competition and innovation.  Texas Republican Jeb Hensarling criticized a proposal to create an agency to assess financial products:

"The proposal represents one of the greatest assaults on consumer rights I have witnesses.  The legislation will stifle innovation, perhaps the next online banking service or the next frequent flyer mile offering, and worse yet will contract credit to our small businesses at a time of historic unemployment," he said.

Federal Reserve chairman Ben Bernanke said all systemically important institutions must be subjected to more effective supervision. Whatever final plan emerges, he said all federal regulators must focus on accountability:

"Collective decision-making can mean that nobody owns the decision and that the lines of responsibility and accountability are blurred.  Achieving an effective mix of collective process and agency responsibility with an eye toward relevant institutional incentives is crucial to successful reform," said Bernanke.

Sheila Bair, head of the Federal Deposit Insurance Corporation, which guarantees consumer bank deposits, urged lawmakers to ensure an effective, credible and orderly process of  winding down troubled firms whose collapse could trigger a new financial crisis.

She supported the proposal for a new consumer protection agency, but said it could be tougher:

"The administration's proposal would be even more effective if it included even tougher oversight for all financial services providers, and assured strict consumer compliance oversight for bank," she said.

Bair also said a plan to take responsibility for examining and enforcing rules away from federal bank regulators would disrupt consumer protection oversight of banks, and fail to address the current lack of supervision of non-bank institutions.

Another witness urged lawmakers to maintain uniformity of federal rules affecting banks in various U.S. states.  Joseph Smith, North Carolina Commissioner of Banks voiced this concern:

"Our major concern is that the legacy of this crisis could be a highly-concentrated and consolidated industry that is too close to the government and too distant from consumers and the needs of its communities," Smith said.

In his testimony Friday, Treasury Secretary Geithner said the administration will work with Congress as legislative proposals are refined, but he added that there should be no disagreement about the need to act on regulatory reform.