March 24 (Bloomberg) -- Senate Banking Committee Chairman Christopher Dodd said Congress may consider several agencies to jointly oversee systemic risks, rather than letting the Federal Reserve do the job.

A council of the Fed, the Federal Deposit Insurance Corp. and the Office of Comptroller of the Currency would let the U.S. avoid giving too much power to a single agency, Dodd said today at a committee hearing in Washington.

“I for one would be sort of intrigued in looking at alternative ideas,” Dodd said. The council would have “professional staff that would be analyzing systemic risk” and the leadership would rotate so that “no one agency necessarily dominated,” Dodd said.

Support for the Fed as the systemic-risk regulator is eroding after House Financial Services Committee Chairman Barney Frank said March 20 that the Fed’s role in American International Group Inc. “undercuts” his proposal. Dodd and Richard Shelby, the Senate panel’s top Republican, said March 19 they are reluctant to expand the Fed’s role, faulting the central bank for lapses leading to the financial crisis.

Lawmakers are planning to overhaul U.S. financial industry regulations in response to the collapse of credit markets, which contributed to the steepest economic decline since the Great Depression. The Banking committee is holding a series of hearings on regulating lenders, to avoid a future crisis.

A systemic-risk regulator should have the primary role to “protect the economy from major shocks,” said Aubrey Patterson, chief executive officer of BancorpSouth Inc., a Tupelo, Mississippi-based bank holding company.

Fed’s Monetary Role

Patterson, representing the American Bankers Association, raised concerns about the ability of the central bank to set monetary policy if it also was required to take on additional regulatory responsibilities.

Senator Jim Bunning, a Kentucky Republican, said Congress should “not give the Fed more power” as the systemic regulator because the central bank is “no longer an independent agency.”

“Banks and other financial firms will fail in the future,” he said. “The most important thing we can do for stability is to make sure regulators have the rules and powers in place to close failing firms in a quick but controlled manner.”

The Credit Union National Association, which represents an industry with 90 million members and more than 8,000 lenders, said the committee should exempt retail credit unions from supervision by a systemic-risk regulator.

“We urge Congress to exclude from the scope of such regulation smaller institutions that have shunned undue risk,” CUNA President Daniel Mica said. Credit unions represent about 6 percent of total depository institution assets, Mica testified.

The seizure of two corporate lenders last week, U.S. Central Corporate Federal Credit Union and Western Corporate Federal Credit Union, shouldn’t prompt lawmakers to expand bank regulation to credit unions, Mica said.

“Essentially, what created losses at the two corporate credit unions were declines in the values of mortgage-backed securities in which they had invested,” he said.

To contact the reporter on this story: Margaret Chadbourn in Washington at mchadbourn@bloomberg.net.

Last Updated: March 24, 2009 13:10 EDT