Geithner Defends Proposed Overhaul of Financial System

Treasury Secretary Timothy Geithner today launched the Obama administration's push for the most sweeping financial system overhaul since the Great Depression, beginning with a Capitol Hill hearing.

But during a morning session with the Senate Banking Committee, lawmakers made it clear the administration would encounter opposition from both sides of the aisle.

"Over the past two years, our nation has faced the most severe financial crisis since the Great Depression," he said this morning before the Senate Banking Committee. "Our financial system failed to perform its critical functions.

ABC News video of Tim Geithner Senate Banking committee hearing.Play

"American families are making essential changes in response to this crisis. It's our responsibility to do the same, to make our government work better."

With widespread criticism emanating from Capitol Hill and the financial industry, including key groups such as the U.S. Chamber of Commerce, the administration faces a fight to get its proposals passed into law.

Geithner today urged lawmakers to come together and take action while the effects of the current financial crisis are still being felt across the country.

VIDEO: Geithner: Consumers Need ProtectionPlay

"Every financial crisis over the last generation has sparked some effort at reform, but past efforts have begun too late, often after the will to act has subsided. We cannot let this happen this time," Geithner warned. "We may disagree about the details, and we will have to work through these issues, but ordinary Americans have suffered too much, trust in our financial system has been too shaken, and our economy was brought to close to the brink for us to let this moment pass."

Banking Committee Chairman Chris Dodd, D-Conn., told his colleagues that this issue may be "the most important thing" they have done in the last 60 or 70 years or will ever do "for years to come."

"Getting this right, I don't sense on this committee any great ideological divides," he noted. "What I do sense is a determination to figure out what works best, to get it right, and to get the job done."

The Connecticut lawmaker came out with an angry response to critics of the proposed consumer protection agency.

"When I pick up the morning newspaper and I read the first headline here that 'fault lines emerge as industry groups blast plan to create consumer agency' -- what planet are you living on?" he railed. "The very people who created the damn mess are the ones now arguing that consumers ought not to be protected! They're the people who paid this price! And the idea that you're going to, first of all, attack the very clients and customer who depend upon you every day is not the place to begin."

Bipartisan Opposition to Emerge?

A variety of lawmakers have voiced opposition to the administration's plan, with some concerned about the role the Federal Reserve is expected to play.

"There is one fact upon which I believe we've reached a complete agreement: Our financial regulatory system is antiquated and inadequate," said the panel's ranking Republican, Alabama's Richard Shelby. "I'm not as confident, however, that we have reached agreement on what principles should guide our efforts yet."

Shelby echoed concerns voiced Tuesday by Democratic Sen. Mark Warner of Virginia, arguing against the Federal Reserve's proposed role as the country's new systemic risk regulator.

"The Federal Reserve already handles monetary policy, bank regulation, holding company regulation, payment systems oversight, international banking regulation, consumer protection and the lender of last resort function," Shelby said. "These responsibilities conflict at times, and some receive more attention than others. I do not believe that we can reasonably expect the Fed or any agency or any other agency effectively play so many roles."

Another vocal Republican critic, Sen. David Vitter, R-La., said that "all of a sudden the Fed is acting more like a department of the government than an independent bank."

The Treasury chief, though, claimed the Fed is better suited to monitor the country's largest, most complicated institutions than alternative options such as the proposed Financial Services Oversight Council, which is designed to help fill gaps in the regulatory system.

"The council will not have the responsibility for supervising the largest, most complex, interconnected institutions, and the reason for that is simple: that is a highly specialized, complicated task," Geithner said. "It requires tremendous institutional capacity and organizational accountability. Nor would a council be an appropriate first responder in a financial emergency. You cannot convene a committee to put out a fire. The Federal Reserve is in the best position to play that role."

Sen. Chuck Schumer, D-N.Y., responded that the Fed has "failed significantly" in the past, but he told his colleagues that ultimately, "you cannot let the perfect be the enemy of the good here."

Geithner's second hearing of the day, before the House Financial Services Committee this afternoon, was postponed Thursday afternoon due to votes on the House floor and will be rescheduled for a later date, according to the panel.