WASHINGTON (Bloomberg) — Treasury Secretary Timothy Geithner defended the administration's proposal to give the Federal Reserve increased powers in his first public tussle with lawmakers sceptical whether the central bank is up to the job.

Advocating for President Barack Obama's regulatory overhaul on Capitol Hill, the Treasury chief faced repeated questions from senators who cited previous regulatory failures at the Fed and potential conflicts with its monetary-policy duties.

"The Federal Reserve is best positioned" to oversee the biggest financial companies, Geithner told the Senate Banking Committee in Washington, adding that the Obama plan gives the Fed only "modest additional authority". Most central banks around the world have some responsibility for monitoring systemic risks, he said.

Obama's plan calls for the Fed to monitor the biggest, most interconnected banks, sets up a new agency to oversee consumer financial products and brings hedge funds and private equity firms under federal supervision for the first time. The central bank, which supervised Citigroup Inc. and Bank of America Corp., has come under fire from some members of Congress for its secretiveness and lack of public accountability.

Banking Committee Chairman Christopher Dodd and the senior Republican on the panel, Richard Shelby, both said they were concerned that the Fed system, with its diffuse structure of district banks, would be ineffective in watching over companies deemed too big to fail.

The administration's regulatory proposal "represents a grossly inflated view of the Fed's expertise", said Shelby, of Alabama.

Dodd, a Connecticut Democrat, quoted one critic's view that giving the central bank more power was like awarding a son a "bigger, faster car right after he crashed the family station wagon". He added that he hadn't made a conclusion on the issue.

Geithner said that the Fed has "greater knowledge and feel for broader market developments" than any other US banking agency. He added that giving those powers to a council of regulators wouldn't work.

"You don't convene a committee to put out a fire," he said.

The administration also wants to put an additional check on the Fed's emergency lending power by requiring the Treasury to approve its use in advance, Geithner told the panel. He also said the new consumer agency will take away Fed authority over mortgages, credit cards and other issues.

Senator Bob Corker, a Tennessee Republican, asked Geithner if Obama should pledge in writing that none of the administration officials who worked on the regulatory blueprint that increased the Fed's power will become chairman of the central bank. National Economic Council director Lawrence Summers, one of the plan's chief architects, is often mentioned as a possible successor to Ben Bernanke, the current Fed chairman.

"No," Geithner said. "I don't think that will be appropriate, nor do I think that will be necessary."

Senator Charles Schumer, a New York Democrat, said he is reluctantly coming to the conclusion that the Fed should serve as the systemic risk overseer even after its failures in protecting consumers.

"You cannot let the perfect be the enemy of the good here, or we end up with less," Schumer said. "I tend to agree that the Fed is the best answer."

Schumer separately faulted the administration for not being bolder in its overall plan, and called for considering a single regulator for the nation's banks. Geithner countered that argument by noting that other countries that have consolidated regulators weren't immune to the global crisis.

On the $700 billion Troubled Asset Relief Programme, Geithner said he hasn't decided whether to end the bailout effort by the end of the year, as the law calls for. The legislation, passed in October, gives the Treasury secretary the option to extend it through most of 2010 by submitting a written justification to Congress.

The Treasury secretary urged lawmakers to accelerate their consideration of the administration's proposal.

"Every financial crisis of the last generation has sparked some effort at reform, but past efforts have begun too late, after the will to act has subsided," Geithner said. "We cannot let that happen this time."