Obama Administration Bashes Dodd Financial Reform Bill

(MoneyWatch)  Sen. Chris Dodd is under attack for his sweeping financial reform proposal -- from the White House.

Austan Goolsbee, a top economic adviser to President Obama, said at a conference in Washington today that Dodd's plan of transferring the Federal Reserve's and FDIC's bank supervisory powers to a new regulatory agency would cause confusion (free registration required).

"There has always been an issue that in a moment of crisis where the Fed is out trying to figure out what they are trying to do, and if they are not integrally involved with the actual regulation and oversight to the institutions, you could get into a 'left hand doesn't know what the right hand is doing' kind of problem," Goolsbee said.

The Obama Administration, along with House Financial Services Chairman Barney Frank, wants the Fed to serve as the chief financial regulator. At the same conference, Deputy Treasury Secretary Neal Wolin also laid into Dodd's plan of stripping the Fed of its bank regulatory role.

"Supervision gives it deep understanding and timely access to information about the banking sector, payments systems, and capital markets. Stripped of its supervisory role, the Fed would not have timely and complete information in a crisis."

The Fed's record as a regulator during the financial crisis is as desultory as that of other bank watchdogs. The board's monetary policies also directly contributed to the housing bubble. What makes it suitable to take the lead in overseeing the financial industry and combating systemic risk is hard to fathom.