Published: Wednesday, 23 Sep 2009 | 2:32 AM ET

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Treasury Secretary Timothy Geithner says he supports revisions to the administration's financial reform plan that were proposed by Rep. Barney Frank.

cnbc.com

Frank, a liberal Massachusetts Democrat, wants to pare back a plan to establish a new consumer protection agency to address concerns raised by neighborhood banks and other lawmakers.

Frank supports creation of the agency but would set stricter bounds than proposed by the Obama administration.

Frank's envisioned agency would not be allowed to require that companies offer standardized products known as a "plain vanilla" option. Exempt from agency oversight would be retailers, real estate brokers and other industries.

Geithner told a House panel Wednesday the administration is "very supportive" of the changes.

Geithner’s eight-page testimony devotes the most attention to the creation of a new watchdog agency, the Consumer Financial Protection Agency, which would have broad rule making and supervisory power of firms offering services and products to the public.

“Consumer protection cannot be reformed without addressing these structural problems," the testimony reads. “Our proposal will address them directly. It will consolidate fragmented consumer authorities into one agency.” 

• House Panel Revising Obama's Consumer Watchdog Bill

The reform package, which some now say is unlikely to be passed this year despite much effort, has become a front burner issue again, with new differences emerging between key Congressional advocates.

Frank Tuesday said he did not agree with a proposal unveiled by Senate Banking Committee Chairman Chris Dodd (D-Conn.) earlier this week that would wrap the existing banking supervisory functions of four agencies, including the Federal Reserve, into a new entity. Dodd’s proposal also runs counter to the White House’s preferences. 

Another hearing is scheduled for 2:00 p.m. ET, featuring four banking regulators:. FDIC Chairman Sheila Bair; John Dugan, Comptroller, Office of the Comptroller of the Currency; John Bowman, Acting Director, Office of Thrift Supervision and Joseph Smith, Jr., North Carolina Commissioner of Banks, who is representing the  Conference of State Bank Supervisors.

Geithner’s testimony, however, does address other key banking issues, such as higher capital requirements and stricter supervision of too-big-to-fail firms.

“It will force these firms to pay an appropriate regulatory price for the risks that their failure or distress could impose on the broader financial system,” the testimony states. “It will offset the perceived government support enjoyed by these firms, which should substantially reduce any competitive advantage they have due to the market’s assumption that they would receive assistance in the event of failure.”

More on CNBC.com:

• Video: Banking on Geithner
• Video: Lessons from Lehman
• Slideshow: World's Most Competitive Financial Centers

In making a case for resolution authority, Geithner’s testimony indicates that the the Obama administration will require such firms to “prepare and regularly update a credible plan for their rapid resolution in the event of severe financial distress." Regulators will also review them on a regular basis.

Some analysts say the lack of resolution authority thwarted federal efforts to deal with Lehman Brothers, whose bankruptcy, filing sent shock waves through the global financial system, and AIG

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[AIG  Loading...      ()   ] , which has required almost $200 billion in US financial aid.

Geither’s testimony cites the Lehman case, saying, “its collapse showed, existing bankruptcy arrangements are often ill-suited for dealing with the insolvency of large financial institutions.”

—Reuters contributed to this report.

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