Senior U.S. financial regulators defended their turf in remarks to be delivered on Friday at a congressional hearing on the Obama administration's sweeping regulatory reform agenda.

With Congress moving ahead on reshaping the student loan market and putting new curbs on executive pay, a U.S. House of Representatives panel was slated to hear from regulators about longer-range changes affecting their agencies' size and scope.

Three parts of the Obama reform plan involve shaking up existing agencies: naming the Federal Reserve as regulator of systemic risk in the economy; creating a Consumer Financial Protection Agency; and consolidating bank supervision.

President Barack Obama is proposing these changes, along with several others, in response to the worst financial crisis in generations and with the economy in a deep recession.

A central goal of the reforms is to streamline and modernize a financial regulation system largely developed during the Great Depression and left behind by rapid change in the banking industry and financial markets.

Treasury Secretary Timothy Geithner told the House Financial Services Committee at the hearing that he was willing to work with lawmakers on shaping an overhaul of financial regulations, but insisted major changes are necessary.

The financial crisis of the past two years show the financial system failed in its most basic responsibility to supply credit and protect consumers and that cannot happen again, he said.

But the Obama reforms have encountered stiff resistance from industry, lawmakers and regulators themselves.

John Bowman, acting director of the Office of Thrift Supervision, a unit of the Treasury Department, in his prepared remarks argued for his agency's survival. Obama wants to merge OTS with another bank supervisory agency as an incremental step toward streamlining a patchwork of bank supervisors.

Bowman said he disagrees with the administration's proposal to abolish his agency and eliminate the federal thrift charter underlying the savings and loan industry.


OTS was chief regulator of bailed-out former mega-insurer American International Group and of mortgage lender Washington Mutual, the largest U.S. bank failure in history.

Bowman told lawmakers that OTS was not chosen by these and other financial firms as the most lenient regulator they could find, as critics of so-called regulator-shopping have said.

He said some large institutions under OTS supervision failed simply because they focused on the mortgage market.

He said OTS also opposes allowing the proposed Consumer Financial Protection Agency to strip examination and enforcement powers away from current bank regulators.

The CFPA is an Obama proposal meant to centralize the consumer protection duties of several existing agencies in a new organization without distracting additional obligations.

But John Dugan, head of the Office of the Comptroller of the Currency, also a Treasury unit, said in his remarks the CFPA should not strip powers away from bank regulators.

He said he generally supports the administration's reform plan, but opposes a proposal that would let the Federal Reserve override attempts by his agency to police national banks.

Dugan said he supports the proposal to merge his agency with OTS. He also gave a nod to the creation of a council of regulators to oversee risks to the overall financial system.


Federal Deposit Insurance Corp Chairman Sheila Bair endorsed the creation of the CFPA, but said bank regulators should continue to examine and enforce standards.

She said the CFPA should be able to write rules, but that federal banking regulators such as the FDIC should retain authority to supervise insured institutions.

U.S. Federal Reserve Chairman Ben Bernanke said in his prepared remarks that taking on responsibility for supervising the broad health of the financial system would be a natural outgrowth of the central bank's existing responsibilities.

Some lawmakers have questioned whether the Fed is up to taking on systemic risk regulation responsibilities, along with its other duties including handling monetary policy.

At the outset of the hearing, committee Chairman Barney Frank said a bill to impose curbs on executive pay is likely to move to the floor of the House for action on July 31.

The bill would give shareholders the right to cast non-binding votes on executive compensation plans at publicly traded companies, while also banning pay schemes at financial institutions deemed to encourage excessive risk-taking.

Aides said another bill to fundamentally change the $92-billion student loan market, already approved by a House committee, would move to the House floor soon.

(Reporting by Kevin Drawbaugh; Editing by Andrea Ricci)