WASHINGTON — Enacting credit card reform and completing the stress tests cleared a path for regulatory restructuring, but policymakers still face long odds of accomplishing any changes this year.

The Obama administration has yet to declare how it wants to see oversight improved, and the various agencies threatened by a loss of power are already defending the status quo. There also is a growing fear that the longer the debate drags out, the harder it will be for Congress to come to an agreement.

"It is easier to attempt to fill gaps in our regulatory regime as opposed to taking on very different political battles that inevitably result from broader proposals for regulatory restructuring," said David Nason, managing director of Promontory Financial Group and a former Treasury assistant secretary for financial institutions.

Treasury Secretary Tim Geithner acknowledged as much last week, when he warned that the administration would have to act quickly or risk losing steam.

"You want to move at the point where people still have the memory of the trauma," Geithner said. "If you wait for the memory to fade, then the impetus for reform will fade and you will probably get less change than you need."

Far from debating the details, policymakers are still divided on how to even approach reform: piecemeal or comprehensively.

House Financial Services Committee Chairman Barney Frank has said he wants to split reform into at least two parts, with one bill tackling oversight and resolution of systemically important institutions and another bill that takes broader steps like consolidating regulatory agencies.

But Senate Banking Committee Chairman Chris Dodd, and several of his colleagues, want to go at the whole topic at once.

"One big bill," Dodd told reporters last week. "In the Senate, you can see how difficult it is to do any one bill … you can't just deal with one idea but a set of ideas."

After initially appearing to endorse a piecemeal approach by proposing Congress quickly grant the government resolution powers, the administration now appears to favor a single bill.

In an interview last week on Bloomberg TV, Geithner said that he planned to unveil a blueprint for reform by mid-June, and that it was critical it be comprehensive.

"It's hard for people to look at any pieces of these things without looking at the whole," Geithner said. "And we want people to be able to look at the whole."

The piecemeal approach has its advantages. Though observers uniformly give poor odds to the enactment of a broad overhaul this year, they said Congress does have enough time to pass a bill creating a systemic risk regulator and determining how such firms are resolved. Broader reform, which is expected to include proposals to beef up consumer protection and consolidate agencies, will require more debate and spark turf fights that cannot be resolved quickly.

"I do think systemic risk can get done and it can be more robust than everyone had originally planned," said Scott Defife, a lobbyist for the Securities Industry and Financial Markets Association.

But even passing a bill targeting just systemic risk will not be easy, observers said.

"Can we get the big picture done in 2009? No, we can't," said Kevin Jacques, Boynton D. Murch Chair in Finance at Baldwin-Wallace College and a former Treasury official. "I'm not even sure we can do systemic risk by itself in 2009, and the reason is we've already seen differences of opinion on how this should be done."

Several competing proposals have emerged to handle systemic risk. Frank has already thrown his support behind granting the Federal Reserve Board the power to oversee all systemically important institutions, while Dodd has favored the creation of a regulatory council to oversee "too big to fail" firms.

The administration has also proposed giving the Federal Deposit Insurance Corp. the power to resolve systemically important institutions — an idea opposed by Comptroller of the Currency John Dugan, who has said such power should go to the Fed or Treasury.

Since the matter of exactly how to deal with systemic risk is up in the air, Congress is rapidly losing its window of opportunity this year. Though it is only May, lawmakers are already committed to spending much of the remaining legislative calender on budget issues — leaving little time for a lengthy debate on regulatory restructuring. The administration, meanwhile, is expected to give priority to other issues, including health-care reform and protecting the environment.

Of the two chambers, the House appears poised to move first — and could still pass a limited bill this year. Frank is set to begin a series of hearings on reform when Congress returns from recess next week. Though Republicans are likely to oppose his eventual proposal, Frank has a large enough majority to pass legislation. But the path in the Senate is unclear. Barring a substantial push from the administration, a reform bill's outlook there is doubtful, observers said. Many said Dodd, who faces a tough re-election campaign next year, may not be able to pay enough attention to the issue.

"You have the chairman of the Senate Banking Committee up for re-election and it's going to be a tough one … that's going to take his time," said Brian Gardner, a political analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc. "He's going to have to spend a lot of time in Connecticut, so it's not clear how much time he's going to spend on regulatory restructuring."

Dodd will also likely need at least some Republican support to move a bill. Though Sen. Richard Shelby, the panel's No. 1 Republican, has appeared open to reform, he has repeatedly emphasized that any legislation needs careful deliberation, and has shown little willingness to speed the process. Like Dodd, Shelby also is reluctant to give the Fed more power.

Jaret Seiberg, an analyst with Washington Research Group, a division of Concept Capital, said lawmakers must first settle which agency oversees systemic risk before moving forward. The Senate's unwillingness to give that role to the Fed is likely to slow debate.

"It certainly is the reason why Congress has not quickly adopted a systemic risk bill — the fact that there isn't a lot of support for giving the Fed that role in the Senate," he said. "The issue is going to be what's the better alternative that can emerge in the next six to eight months."

A broader reform package that consolidates regulators is likely to spur even more debate, observers agreed. The questions are numerous: Should the Fed and the FDIC still have authority to directly regulate banks while they perform other functions? Should one banking regulator preempt all state consumer protection laws? Should lawmakers create a new federal insurance charter and regulator? Should they eliminate the thrift charter, or merge it with the national bank charter? What role should states play in the regulation of banks?

"Beyond … [systemic risk] the administration has not shown any sign of where they might be on reorganization of the regulatory structure," said Wayne Abernathy, a Treasury official in the Bush administration and now executive director of financial institutions policy for the American Bankers Association. "What it means is they want to do the most pressing issues first and see where they are at the end of that. There should be a recognition that the more these issues you take on, the less you get done."

Promontory Financial's Nason, who was a key author of the Bush administration's regulatory blueprint released last year, agreed policymakers had a lot to sort through.

"The momentum for broad reform is considerably greater than it was a year ago, but do not underestimate the complexity of the task," he said. "There is an enormous amount of work to do."

Though Dodd said last week that passing a reform bill this year was still possible, he acknowledged the debate over the issues would take time.

"We are doing something that hasn't really been done in almost 70 years, and that is to really look at the regulatory structure and the architecture of financial services," he said. "How do you create that architecture which one, invites creativity and imagination — which has been the hallmark of our financial services sector — and simultaneously does not take every new idea within an inch of its life and provides the kinds of reputation of safety and soundness and security that people want to know about their financial institutional architecture? That's the challenge."

Clashes have already broken out over what roles agencies should have.

After a report surfaced last week that the administration was discussing the creation of a consumer financial product safety commission, Securities and Exchange Commission Chairman Mary Schapiro objected.

"I will question pretty profoundly any model that would try to move investor-protection functions out of the Securities and Exchange Commission," she said.

If the administration's proposal also tries to reassign the power to oversee credit cards and mortgages — both in the purview of the federal bank regulators — it could touch off even nastier political sparring lasting into 2010 and beyond.

"Because of the combination of political factors and the number of details you have to address, it's very easy to underestimate how many problems" may arise, said Oliver Ireland, a partner at Morrison & Foerster. "This is a multiyear task."

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