WASHINGTON — Banks could further slow their lending if Congress too aggressively reorganizes regulation of the industry, Federal Reserve Board Gov. Elizabeth Duke said Thursday.

Duke, speaking to a group of bankers in Washington, pushed back on a Senate proposal to strip the central bank of its oversight of thousands of state-chartered banks.

"Reorganizing the bank regulators at a time when credit standards are tight and banks are concerned about loan classifications certainly creates some risk that bankers would hesitate to make loans before they gain some familiarity," Duke said.

Duke echoed statements from Fed Chairman Ben Bernanke from Wednesday that the Fed's broad role in economic policymaking is informed by its regulation of banks of all sizes. Direct oversight of the largest financial institutions, which is proposed in the bill offered by Sen. Christopher Dodd (D., Conn.), is not enough, she said.

"I'd hate to see the Federal Reserve become focused too narrowly on the activities of just the largest institutions," Duke said.

Bankers pressed Duke on a range of regulatory and legislative issues, including Congress' consideration of a new agency to protect consumers. The proposal introduced by Dodd earlier this week would house a new consumer bureau within the Fed, though Duke stressed that the Fed would have little role beyond funding the new consumer protector.

"It does not give us any role in consumer protection," Duke said, describing the Fed and the proposed bureau merely sharing an address. "I'm puzzled by how that is actually going to work."

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