Core Reforms Held Firm As Much Else Fell Away

In Triage Mode, Economic Team's Goal To Expand Fed's Power Trumped Others

The plan President Obama unveiled yesterday to overhaul the government's oversight of the financial system was not the wholesale remaking of Washington that the administration had initially envisioned.

As the proposal came under intense pressure this spring, its chief architects held firm to a few reforms they deemed the most fundamental to averting another financial crisis while giving ground on nearly everything else.

Time and again, lawmakers, regulators and industry lobbyists pressed their concerns behind closed doors at the White House and the Treasury Department, according to participants.

Turf-conscious regulators opposed the idea to consolidate banking oversight agencies and took their appeal over the Treasury directly to the White House. Ultimately the administration spared all but one agency.

A few key lawmakers argued against merging the two federal agencies that oversee the stock and commodity markets. That did not happen.

Insurance companies fought over whether a national regulator should oversee them. The White House dropped the proposal.

But on those elements that mattered most to the administration, particularly expanding the powers of the Federal Reserve, Obama's senior advisers were unyielding.

On May 8, lobbyists representing many of the nation's banks and hedge funds huddled with senior White House advisers in the Roosevelt Room, seeking to snuff out an administration plan to increase the Fed's authority to regulate them, when Treasury Secretary Timothy F. Geithner stuck his head in the door.

Fresh from meeting with Obama, Geithner asked the lobbyists what they were up to. When they explained they preferred that a council of regulators, rather than the central bank, safeguard the financial markets, Geithner silenced the discussion with a string of obscenities, according to people who were present.

"I don't believe in rule by committee," he said.

Now as the plan moves to Capitol Hill, skeptics say it gives the Fed too much power. Others say it did not go far enough to eliminate overlapping agencies. Some big financial firms complain that they were cut out of the process.

Geithner and National Economic Council director Lawrence H. Summers, who forged the plan, did not seek a consensus among all of these interest groups. Instead, Summers said, they focused on how to fix the regulatory system's root problems. Whether the solution called for the merger or elimination of agencies was a secondary concern.