Senior U.S. lawmakers launched an assault on Thursday on the centerpiece of the Obama administration's financial reform plan -- giving the Federal Reserve new powers to police broad risks in the economy.

In addition to handling monetary policy, under the Obama plan the Fed would regulate systemic risk and try to prevent future financial crises, working in tandem with an inter-agency council.

The Federal Reserve system was not designed to carry out the systemic risk oversight mission the administration proposes to give it, Senator Richard Shelby, the top Republican on the U.S. Senate Banking Committee, said at a hearing.

Concluding that the Fed is better qualified than any other government agency to handle such a job represents a grossly inflated view of the Fed's expertise, Shelby said, reflecting the rapid spread of 'Fed fatigue' on Capitol Hill.

A day after President Barack Obama unveiled his plan, Treasury Secretary Timothy Geithner was defending it in testimony before the banking committee in the first of more than a dozen hearings before Congress by mid-July.

Other points of contention emerged during the session, including a proposal for establishing a consumer financial product safety agency, and the administration's decision not to pursue more streamlining of bank supervisors.

Geithner urged Congress to act fast on regulatory reform in response to the crisis, which has focused public and government attention worldwide on oversight of banks and markets.

We may disagree about the details, and we will have to work through those issues. But ordinary Americans have suffered too much; trust in our financial system has been too shaken; our economy has been brought too close to the brink for us to let this moment pass, he said.

BIGGEST CHANGES SINCE 1930S

Obama is proposing the most far-reaching changes in U.S. financial regulation since the 1930s, mirroring a similar effort already under way in the European Union.

Much of the Obama plan, under development for six months, will require legislative action from Congress. The president wants to sign legislation into law before the end of the year, an ambitious schedule as other pressing issues, such as healthcare reform, are competing for Congress' time.

In the House of Representatives, where Democrats are in firm control, quick action is expected. But the outlook is unclear in the Senate, where the balance of power is held by a handful of moderates, some of them banking committee members.

At the panel hearing, Geithner sat alone at a long, black-draped table. Criticized early in his tenure as too timid under questioning from lawmakers, he was assertive, at times asking Senator Christopher Dodd, the Democratic chairman of the committee, for more time to make key points.

Dodd warned the financial industry against attacking the proposal for setting up a financial products safety agency.

This is a very simple, common-sense idea ... Let's put a cop on the beat, Dodd said. Stronger consumer protection, I believe, would have stopped this crisis before it started.

SHOW OF SUPPORT

Dodd's comments were an important show of support for a key component in the administration's wide-ranging program.

So were remarks made separately at a news conference by House Speaker Nancy Pelosi, who called Obama's call for a consumer protection agency long overdue.

Pelosi also said it was very important to empower the Fed to supervise firms that could pose a systemic threat to our financial system ... I wish that had been in place before.

In the Senate, banking committee members with questions about designating the Fed as systemic risk regulator included Republicans Jim Bunning and David Vitter.

Shelby said the Fed could be stretched too thin by taking on the job. He questioned whether the Fed could have detected and averted problems like last year's collapse of former Wall Street giant Lehman Brothers Holdings Inc or the taxpayer bailout of American International Group Inc.

Like Shelby, committee chairman Dodd has been a consistent critic of the Fed. He said he has not decided on assigning it systemic risk duties. I'm open on the issue, he said.

Democratic Senator Charles Schumer said, The Fed is the best answer. There are no great ones.

Geithner had been scheduled to testify on Thursday afternoon at the House Financial Services Committee, but that hearing was canceled due to vote activity on the House floor.

(Additional reporting by Alister Bull, Mark Felsenthal, Emily Kaiser, David Lawder, Patrick Rucker, Karey Wutkowski, Editing by Chizu Nomiyama)

Barack obama Timothy geithner Nancy Pelosi