WASHINGTON — As President Obama's regulatory reform proposal sputters, Federal Deposit Insurance Corp. Chairman Sheila Bair stepped up with an alternative strategy Thursday that dodges many major political obstacles and could rally support for the plan.

Bair continued to argue that a regulatory council, not the Federal Reserve Board, should oversee systemic risk and countered criticisms leveled against the council by Treasury Secretary Tim Geithner. Most members of the Senate Banking Committee endorsed her approach at a hearing Thursday, showing it is attracting broad bipartisan support. The FDIC chief also suggested a new way to structure a proposed consumer protection agency that would likely ease the banking industry's objections.

Geithner will likely react to her suggestions today when he testifies alongside Bair and the other regulators before House Financial Services Committee hearing.

While the Treasury continues to insist its regulatory reform plan is on track, even supporters like Rep. Barney Frank and Sen. Chris Dodd have questioned key elements. The options Bair laid out Thursday would eliminate much of the opposition to the Obama plan while still achieving many of its goals.

During a Senate Banking Committee hearing on Thursday, Bair dismissed as too weak the administration's proposed systemic risk council, which would advise the Fed but have no real authority.

"The oversight council described in the administration's proposal currently lacks sufficient authority to effectively address systemic risks," Bair said.

Asked by Dodd to respond to Geithner's criticisms that a more powerful regulatory council would lack the necessary accountability and speed to act during a crisis, Bair said she disagreed.

"Bringing multiple perspectives together is going to strengthen it, not weaken it," she said. "You are talking about tremendous regulatory power being invested in whatever this entity is going to be, and I think in terms of checks and balances it is also helpful to have multiple views … and come to a consensus."

Also testifying at the hearing was Fed Gov. Dan Tarullo, who likened a powerful council to the model adopted by the United Kingdom when it created the Financial Services Authority.

"If you pick the council that basically is able to direct everybody to do what the council thinks it ought to do, it's not that far from the Financial Services Authority mechanism in the U.K. or something like that," Tarullo said.

But Bair received support from Securities and Exchange Commission Chairman Mary Schapiro, who also argued that a stronger regulatory council was necessary.

"I agree with what Sheila was saying," Schapiro said. "I think a council is really critical to bringing a diversity of views about financial markets to the deliberations. … If you don't bring those diverse views together, you run the risk of any one regulator not appreciating the risk to stability and not understanding the risk that might impact a particular financial institution for which it does not have direct responsibility."

So far, it appears the Treasury is planning to stick to its guns on Fed oversight despite the fact it enjoys little support in the Senate. During Thursday's hearing, just about every committee member present endorsed a systemic risk council or emphasized that such power should not be vested solely in the Fed.

Dodd described himself as "agnostic" but appeared to be leaning toward a systemic council over the central bank.

"I share my colleagues' concerns about giving the Fed additional authority to regulate systemic risk," Dodd said. "Systemic risk regulation involves too broad of a range of issues for any one regulator to oversee."

Sen. Richard Shelby, the panel's lead Republican, rejected giving such power to the central bank.

"I strongly believe we should consider every alternative possible to the Fed as systemic risk regulator," he said.

Bair also suggested ways to save the Obama administration's proposed consumer protection agency, which is under heavy fire from the banking industry.

Frank opted to cancel a planned House Financial Services Committee vote next week on a bill creating the new agency in part because he wanted to generate more support for it.

While Bair supported the creation of a new agency to write new consumer protection rules, she said banking regulators should keep their existing enforcement authority over banks.

"We strongly, strongly, recommend the examination and enforcement component [stays] with the bank regulators," she said. "There are important synergies between prudential and consumer supervision. We typically cross-train our examiners … abusive mortgages that are abusive to consumers are also unsafe and unsound and frequently we will find those consumer affairs problems."

Her plan is likely to address the industry's objection that being regulated by two different agencies is too difficult.

Bair also raised practical problems with handing enforcement over banks to the new agency.

"We don't understand why taking all the examiners from the bank regulators and putting them in this new agency and making them responsible for all banks and nonbanks is going to work," she said. "I don't think it would work. I think it would be highly disruptive to the FDIC. That's about 25% of the examiners at the FDIC, and I assume it is a similar percentage for the other regulators."

But Bair did recommend strengthening consumer protection by focusing the new agency's enforcement powers on nonbanks. She also suggested there could be better coordination between regulators and the new agency if regulators had a seat on its board, and suggesting the consumer protection supervisor gain a seat on the FDIC board.

"The goal should be to balance the nonbanks' compliance gap with an examination and enforcement mechanism that should focus outside the banking sector, where you really don't have any examination at all," she said.

"There were a lot of abuses outside the banking sector that we think could and should be addressed by this agency."

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