Blue Dogs, the conservative Democrats who have balked at his most far-reaching healthcare reform ideas, have given President Obama fits. Similarly, Treasury Secretary Timothy Geithner must contend with his own pack of wild canines. The Stray Dogs might be a fitting moniker for the top financial regulators who refuse to recognize Geithner as the alpha male of financial revamp. Their resistance to his proposed overhaul of financial industry supervision is complicating his effort to win approval for a sweeping set of financial changes by year's end.

The most controversial of those changes -- and the ones Geithner's fellow officials are challenging -- would streamline federal bank regulators, vest the Federal Reserve Board with sweeping new powers to oversee the most important financial firms and create a consumer protection agency to ward off predatory lending and other abuses.

During hearings before House and Senate committees last month, the heads of the Fed, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision all criticized various components of the administration plan. After weeks of enduring their sniping, Geithner blew up during a private July 31 meeting with his fellow regulators. In remarks peppered with expletives, Geithner pressed them to get on board. The encounter was first reported by The Wall Street Journal, which the regulators confirmed amid nervous chuckling when asked about it at a Senate Banking Committee hearing last week.

If Geithner had hoped that his outburst would put the regulators in their place, it didn't work. FDIC Chairwoman Sheila Bair, Comptroller John Dugan and Federal Reserve Board Gov. Daniel Tarullo all continued to question the administration's plans to streamline the regulatory landscape. The White House had hoped the House would be set to vote quickly on financial overhaul when lawmakers return from a monthlong break in September and hand the bill to the Senate in plenty of time for enactment by year's end. Swaying enough skeptical lawmakers to enact the administration's plan would have been hard enough without Geithner's colleagues criticizing some of its most important provisions. It's now clear that consensus is a long way off and the House Financial Services and Senate Banking committees won't be able to move the legislation to enactment this fall.

Among the most contentious issues is Geithner's plan to merge the OCC, the regulator of national banks, with the OTS, the supervisor of federally chartered savings and loans. The idea is to eliminate financial institutions' ability to shop for the most lax regulator. The proposal faces intense opposition from banks, thrifts and local bankers, who can bring a lot of political pressure on their legislators not to go along.

Geithner's grousing regulators say regulatory streamlining doesn't address the real shortcomings in financial oversight. Dugan has said the idea "is not consistent" with the Obama administration's larger goal of maintaining independent and accountable regulators. Bair has questioned the premise of regulatory consolidation, saying policymakers might better focus their attention on the true causes of the financial meltdown, such as the near-total lack of regulation of nonbank mortgage originators and a loan securitization proc-
ess that allowed contagion to spread through financial firms with Ebola-like efficiency. "There was regulatory arbitrage, but it was between the bank and the nonbank sectors," she told the Senate Banking Committee Aug 4. "It was nonbank originators operating outside any type of prudential or consumer protection regime."

Bair also warned that streamlining bank regulators would accomplish little and may even makes things worse. "There is profound risk of regulatory capture by very large institutions if we go to a single regulator," she said.

Bair has said she favors vesting more power in a Financial Services Oversight Council and less in the Fed than Treasury has proposed.

Tarullo argued at the same hearing that while some consolidation may be necessary to ensure that banks don't go "regulator shopping," a concentrated regulatory regime may not be the best way to prevent future crises. "There are some advantages of splitting bank supervision," he said. "You need to have the federal deposit insurer in bank supervision so they understand the condition of the industry. The Fed needs a window into how banks function."

Their resistance to changing the status quo frustrated Senate Banking Committee Chairman Christopher Dodd, D-Conn., who noted that nearly every previous regulatory overhaul plan for the past 30 years has called for more dramatic agency consolidation than what Geithner has proposed.

"Our job is not to protect regulators," he said. "Our job is to protect the people who count on us and you and the system to provide for the safety and soundness of the financial markets. Should we not really be listening to the admonitions of previous administrations?"

A similar intensity of opposition colors the disputes over other key provisions. So is financial overhaul doomed to crash upon the regulators' intransigence? Not necessarily. The regulators urged Congress to attempt fewer changes, focusing on the specific legal shortcomings that allowed toxins in the financial system to brew unchecked. Rather than merge some regulators out of existence and infuse others with vastly more power, they suggested changes less likely to provoke political fights.

The changes that are most needed, according to Geithner's colleagues, are creation of resolution powers for failing nonbank financial firms, increasing capital and liquidity requirements and formation of a systemic risk council comprising their agencies.

Bair said establishing a resolution mechanism should be Congress' top priority. "I don't think we restore market discipline until Congress puts something like that in place," she said. Tarullo agreed, stressing that broader resolution powers would have negated the need to bail out firms such as American International Group Inc.

"Too-big-to-fail was at the center of this crisis, and that's what we need to focus on," he said.

Dugan and Tarullo said increased capital and liquidity requirements also are essential, especially for the largest institutions. Tarullo also wants capital structures that give financial firms the option of converting debt to equity rather than relying on the federal government to make creditors whole. Convertible debt, he said, would provide a cushion for firms and put creditors on notice they will take a hit if a company's risk taking lands it in hot water.

In the end, the fate of financial reform may depend on how determined Geithner is to make U.S. financial regulation look sensible on an organizational flow chart.

As many have said, no one would design today's overlapping patchwork of federal and state regulators from scratch, but the system has become calcified, and fixing it would require breaking many political bones.

Perhaps the best treatment is a narrow one.