WASHINGTON — Though Republicans argued Thursday that the Federal Reserve Board stands to gain "sweeping" powers under the Obama administration's regulatory reform plan, a top official reiterated the central bank's view that the new authority would be merely "incremental."

The proposal to establish the Fed as a systemic risk regulator is a "natural outgrowth of the Federal Reserve's existing supervisory and regulatory responsibilities," Donald Kohn, the Fed's vice chairman, told a House subcommittee. "Through our role as consolidated supervisor of all bank holding companies, the Federal Reserve has long been responsible for supervising many of the most important U.S. financial institutions."

Kohn said the Fed can use this experience to inform its supervision of systemic risk beyond the banking system.

As the hearing played out, it became clear why Kohn sought to play down the systemic powers' scope — to keep the Fed's consumer protection authority.

"I don't think the fact that our power might be expanded incrementally is itself a reason to relinquish the consumer authority," he said. "My personal view is, the Federal Reserve is well placed to do a good job in the public interest on consumer regulation. … I would hope the Congress might think about whether there are ways to strengthen the Federal Reserve's commitment to consumer regulation as an alternative to a new regulator."

Under questioning by Rep. Keith Ellison, D-Minn., Kohn admitted that the Fed's track record on consumer protection has some blemishes.

"I agree that we did not see the abuses as widespread as they were and were slow to react to them," Kohn said.

Thursday's hearing before the House Financial Services Committee's monetary policy subcommittee was intended to explore whether empowering the Fed to regulate systemic risk would compromise its independence in conducting monetary policy.

"Some scholars and commentators argue the Fed is uniquely positioned to become the systemic risk regulator because it already supervises bank holding companies," said Rep. Melvin Watt, the panel's chairman.

But Rep. Spencer Bachus, R-Ala., said the change would distract the Fed from its core responsibility: monetary policy.

"This stretches the Federal Reserve too thin," he said. "We all agree on that. It complicates the Fed's ability to carry out monetary policy functions."

Kohn assured the lawmakers that the Fed can handle both responsibilities.

"We do not believe that the enhancements proposed by the administration...would undermine the Federal Reserve's ability to pursue our monetary policy objectives effectively and independently," he said. "[C]entral banks have always been involved in issues of systemic risk, most notably because central banks act as a lender of last resort."

Kohn acknowledged that the White House plan broadens the Fed's jurisdiction but argued that it "already has been moving to incorporate a more macro-prudential approach to our supervisory and regulatory programs."

The Fed has long been one of the most independent government agencies in Washington, but its interventions into financial markets in the past two years have raised concerns about its lack of accountability. This worry was underscored last month when the House Oversight and Government Reform Committee released internal Fed e-mails suggesting that the Fed kept other regulators out of the loop as it negotiated government funding to help Bank of America Corp. close its deal for Merrill Lynch & Co.

In response, Rep. Ron Paul, R-Tex., introduced legislation calling for a full audit of the Fed by the Government Accountability Office. It has 254 co-sponsors.

Kohn said he opposes the bill because "permitting GAO audits of the broad liquidity facilities the Federal Reserve uses to affect credit conditions could reduce the effectiveness of these facilities in helping promote financial stability, maximum employment and price stability."

Rep. Paul countered: "Why wait five years to hear the debate," referring to the time the Fed takes to release transcripts of its policy meetings.

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