Big banks took a beating from government on Thursday, both in the U.S. Congress where lawmakers backed tougher industry rules, and from U.S. and UK regulators who moved aggressively to restrain bankers' pay.

A U.S. House of Representatives committee voted in favor of setting up a new financial consumer watchdog agency, a key Obama administration financial reform initiative.

The same committee, led by Democratic Representative Barney Frank, also voted to move forward by three months to December 1 the effective date for implementing strict new regulations on credit card rates and fees.

Both decisions were only incremental since the full House, and the Senate, have yet to consider the proposals. But if adopted, they would threaten the profits of megabanks ranging from Citigroup to Bank of America.

Democratic Representative Brad Miller, a committee member, called the vote to set up the watchdog agency a rifle shot at abusive financial practices.

It's no surprise that the lenders with the worst practices are still fighting tooth and nail against this bill. The last thing they want is to have to make an honest living, he added.

But committee Republican Representative Brad Hensarling blasted the consumer agency idea.

A government agency, no matter how well intended, cannot be a complete substitute for personal responsibility and an open and transparent market.

While this bill has passed the committee and is one step closer to enactment, consumers should ... reject the false promises of this new federal government power grab, he said.

The committee votes came on the same day that U.S. pay czar Kenneth Feinberg slashed the pay of senior managers at seven firms bailed out by U.S. taxpayers in the financial crisis.

Executives at Citigroup and Bank of America would be hit by Feinberg's pay cuts, as would top earners at former insurance giant American International Group, automakers General Motors and Chrysler, GMAC and Chrysler Financial.


The American people are outraged that the same people on Wall Street who helped cause this major recession are going right back to their greedy and irresponsible ways.

I applaud the Obama administration for taking an important step forward in trying to control the obscene compensation packages of the top executives on Wall Street, Senator Bernie Sanders, an independent, said in a statement.

The Federal Reserve weighed in on the pay issue, as well, issuing guidelines to rein in compensation and discourage excessive risk-taking at the almost 6,000 banks it polices.

These proposed rules will likely affect compensation for hundreds if not thousands of professionals working in our industry, said Timothy Ryan, president of the Securities Industry and Financial Markets Association, a lobbying group.

In London, the UK watchdog, the Financial Services Authority, said it will take action against banks that channel profits into bonuses rather than building capital.

The FSA also said on Thursday that banks should start drawing up living wills so they can be unwound quickly in times of crisis to prevent economic destabilization.

Just over a year since the global financial system skidded to the brink of disaster, with taxpayers worldwide ponying up for a massive rescue program, the U.S. and EU governments are trying to reform financial regulation.

With an eye toward preventing another crisis, officials are pushing for better consumer protection, stronger bank balance sheets, more oversight of unregulated markets, pay structures linked to long-term performance and new protocols for governments to deal with large firms that are in trouble.

After months of delay due to the U.S. Congress' preoccupation with healthcare reform, the Obama administration has begun to win votes in the House on key reform proposals.

But analysts said these actions only underscore that the real fight over reform lies weeks ahead in the Senate.

(Additional reporting by Rachelle Younglai, Karey Wutkowski and Mark Felsenthal in Washington, and Huw Jones in London; Editing by Jan Paschal)