The Obama administration is proposing to fund the enhanced policing of financial firms by levying fees on the largest banks, while sparing community banks from increased costs, a Treasury official said on Friday.

The biggest banks and financial firms that do not fall under direct federal supervision will bear the burden of financing the controversial new consumer protection agency that has been proposed.

Banks with more than $10 billion of assets will also pay more for tougher oversight by their existing regulators.

The largest firms -- those with assets over $10 billion -- will pay more for prudential and consumer supervision, while community banks will not pay any more for supervision than they do today, a Treasury official said.

The official also said the proposed Consumer Financial Protection Agency will be funded by fees, appropriations, and other transfers.

The Obama administration has proposed creating the regulator to keep dangerous financial products away from vulnerable consumers, arguing it is needed because regulators' current scattered approach was seen as ineffective.

The agency would have broad power to write and enforce rules on financial products and services. The financial industry has come out sharply against the idea, arguing it will drive up costs and add an unnecessary layer of regulation.

Existing regulators have also expressed concerns about the new agency. Officials from the Federal Reserve, Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency have said they do not want to lose the ability to examine firms for compliance with consumer protection rules.

The House of Representatives has introduced legislation to create the consumer agency but recently delayed consideration of the bill to hear more feedback.

The tiered structure for funding the new consumer agency largely mirrors what the administration has proposed for financial regulatory fees in general.

In July, the Treasury Department said it was aiming to end arbitrage on bank regulatory fees by requiring that the fees be based on banks' size and complexity, regardless of their charter or primary regulator.

It also said it would aim to lower the regulatory fees for community banks, saying there will be no basis for the Federal Reserve or the FDIC to impose new fees on community banks under the administration's proposal.

(Reporting by Karey Wutkowski; Editing by Phil Berlowitz)