The head of the Securities and Exchange Commission is objecting to a plan being considered by the Obama administration to create a new financial watchdog to protect consumers.
SEC Chairman Mary Schapiro said such a new entity, which was discussed Tuesday night by Treasury Secretary Timothy Geithner and other officials, would reduce the SEC's authority and damage government protection of investors.
"I question pretty profoundly any model that would try to move investor protection functions out of the Securities and Exchange Commission," Schapiro said Wednesday. That couldn't be done "without really damaging the fabric of the entire investor protection regime," she told reporters.
The proposal the administration was considering would centralize the enforcement of laws that protect consumers of financial products, such as credit cards, mortgages and mutual funds.
That effort is currently spread across a number of federal and state agencies, including the SEC, with oversight of mutual funds and other investments, the Federal Reserve and Federal Trade Commission.
Any changes to the nation's financial rule book and oversight will require congressional action, and it's unclear whether lawmakers will unite behind a single approach this year.
Schapiro's comments marked her first sharp public breach with the administration over the shape of the overhaul of rules designed to prevent another massive financial breakdown.
Schapiro has in recent weeks affirmed in testimony to Congress, which is debating the changes, her position that the SEC must play a key role as an independent watchdog protecting investors in any new financial regulation system.
Schapiro also has said she favors the idea floated recently by Sheila Bair, the head of the FDIC, for a new "systemic risk council" to monitor large institutions against financial threats that would include the Treasury Department, Fed, FDIC and SEC.
The White House, by contrast, leans toward recommending that the Fed alone become the new supercop for "too big to fail" financial companies capable of setting off another meltdown.
Officials said the administration has been exploring the new approach in meetings over the past few days with executives of the financial industry. It was discussed at a dinner Tuesday at the Treasury Department attended by Geithner and Lawrence Summers, director of President Barack Obama's National Economic Council.
Schapiro said Wednesday she has been engaged with administration officials in offering her views on the issue, and didn't view the proposal as in its final form.
"I certainly hope we'll be refining it," she said. "I don't think it's a concrete proposal by any means at this point."
See the debate over whether the government is gaining too much power over business here.
An administration official who confirmed that the dinner had taken place said no final decisions had been reached. Under one possible approach, some federal banking agencies might be combined and some powers over consumer products might be consolidated into a new body.
An industry official said the administration supported the concept that already has been introduced in legislation by several senators. This official said the administration may offer its own approach to the issue.
Geithner has said extensive changes were needed to make sure that the current financial crisis, the worst in seven decades, is never repeated.
In prepared remarks to the Senate Banking Committee Wednesday, Geithner said new financial products have resulted in benefits, but lax regulation has exposed Americans to abuses.
He said government rules should ensure that financial choices are clear, reasonable and appropriate.
The officials who spoke late Tuesday did so on condition that their names not be used because the administration was not ready to unveil a proposal.
Treasury issued a statement late Tuesday that called the dinner "one of a series of meetings with a wide range of relevant constituencies and experts" to seek views on regulatory reform.
"No decisions have been made but the administration is actively seeking various viewpoints as it puts together its framework," according to the statement.
A leading proponent of the commission approach has been Harvard University professor Elizabeth Warren, who is the head of the Congressional Oversight Panel for the government's $700 billion financial rescue effort.
Warren argued in a 2007 article that the government needed to do a better job of protecting homeowners who take out mortgages and consumers of other increasingly complex financial products.
Sens. Richard Durbin, D-Ill., Charles Schumer, D-N.Y., and Edward Kennedy, D-Mass., introduced legislation earlier this year that would create a commission like the one proposed by Warren.
Some industry groups have already expressed opposition to the plan.
The Financial Services Roundtable, which represents some of the biggest institutions in the country, has argued that it would be a mistake to separate the regulation of financial products from the regulators who oversee the institutions selling those products.
It was unclear whether the administration will propose creating a new federal agency to house the commission or placing the commission under an existing agency.
The administration is expected to unveil its proposal in the next few weeks as it pushes ahead with a sweeping effort to overhaul the government's financial regulatory system.
The administration already has put forward some broad principles for financial regulatory overhaul, including creation of new powers to allow authorities to take over major financial institutions that represent a threat to the system.