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The Obama administration's plans to create a new consumer protection agency in the financial sector could be 'tricky' and create conflicting oversight, Thomas Hoenig, President and CEO, Federal Reserve Bank of Kansas City, told CNBC Friday.
"The fact and the matter is … there's no really separating consumer protection from the quality of the loan," Hoenig said on "Squawk Box."
Pointing out that the Federal Reserve also had the role of protecting consumers, Hoenig added that "laying on a new oversight body on that could be tricky," as the two institutions would risk crossing over into each other's roles.
The government's reform plan sharpens the Federal Reserve's responsibility, and will prevent institutions from reaching a stage of threatening the entire banking system, he said.
"Institutions should not be too big to fail," Hoenig said.
Hoenig also said that the Federal Reserve is thinking of an exit strategy to prevent the cash pumped into the economy as a stimulus from flaring up inflation.
"We're very seriously thinking about it and I'm on the record as saying it's really important," Hoenig said.
If liquidity were allowed to remain "indefinitely" in the system, "we do risk an inflation outbreak, not next year but in 3-4 years," Hoenig added.
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