Progress toward tighter U.S. financial regulation faltered in the U.S. Congress on Thursday as a House committee postponed a pivotal vote and Republicans on a Senate committee aired stubborn opposition.
The setbacks came as lawmakers streamed out of town for a Thanksgiving holiday break, leaving further decisions on the regulatory reform agenda -- a key initiative of the Obama administration -- until December 1 at the earliest.
The delay flew in the face of Treasury Secretary Timothy Geithner's call for swift action earlier in the day before another panel, the Joint Economic Committee, where he came under heavy fire, including a call for his resignation.
We must bring our system of financial regulation into the 21st century. We need comprehensive reform, said Geithner, the point man for President Barack Obama in an ambitious push to update the rulebook for Wall Street and the banks.
After a capital market crisis that drove the global financial system to the edge of collapse in 2008, Obama wants to ensure a stabler future and prevent any recurrence of the massive taxpayer bailouts of AIG
But he faces stiff resistance from powerful bank lobbyists, as well as Republicans, and with the economy struggling, Geithner is drawing critics across the political spectrum.
Conservatives agree that as point person, you have failed, said Republican Representative Kevin Brady in a tense exchange with Geithner at the Joint Economic Committee hearing.
Brady asked Geithner to step down. He defended his record in response. The White House issued a statement saying Geithner has helped steer the American economy back from the brink.
Democratic Representative Peter DeFazio on Wednesday said in an MSNBC interview that Geithner should not be in his job.
Financial reforms could still happen this year in the House, said Representative Barney Frank, chairman of the House Financial Services Committee, despite a surprise delay.
Frank unexpectedly said at the end of a long bill-drafting session on Thursday that a final committee vote on a sweeping systemic risk bill would not occur that evening as planned due to concerns raised by the Congressional Black Caucus.
He said caucus members were withholding support for the measure. Without them, the bill likely would be defeated.
REP. WATERS CITES RECESSION
Democratic Representative Maxine Waters, the top caucus member on Frank's committee, said in a statement later:
The recession has created a unique systemic risk that threatens all parts of the African-American community, including the poor and the middle class.
Further details were not immediately available.
Frank said he still expected the systemic risk bill would undergo a committee vote on December 1, and go to the House floor for a vote in the second week of December. But he added: If there aren't votes for the bill, it will not come up.
Important amendments were added to the bill on Thursday, including one to set up a $150 billion systemic dissolution fund to finance the unwinding of troubled financial firms.
The Federal Deposit Insurance Corp would handle the unwinds, under the bill, using money in the fund raised from fees charged to firms with more than $50 billion in assets.
Frank's committee also approved a measure to open the Federal Reserve's monetary policy decisions to government audits, a potential blow to the Fed's independence.
Both the Fed audit and dissolution fund measures were added to the wider systemic risk bill, to which no further amendments will be allowed, simplifying the committee vote in December.
If the systemic risk bill is approved, it will be the seventh major reform approved by the panel, following measures to crack down on hedge funds, brokerages, mortgage lenders, credit card companies, executive pay, the over-the-counter derivatives market and credit rating agencies.
Democrats have planned for the full House to vote on a single, consolidated bill at the requested of the Senate.
But the Senate has only recently begun to gear up for dealing with reforms. Testimony by key Republicans on Thursday signaled a long and rocky road ahead leading well into 2010.
Richard Shelby, the top Republican on the Senate Banking Committee, said a draft bill offered by Democratic committee Chairman Christopher Dodd requires a complete rewrite.
He said Republicans will offer their own substitute.
The Dodd bill does not end 'too big to fail,' Shelby said at a committee meeting. It significantly expands the federal government's ability to bail out not only banks, but any large politically connected company.
(Additional reporting by Mark Felsenthal, Rachelle Younglai, David Lawder, Karey Wutkowski, Emily Kaiser; Editing by Gary Hill)