UPDATE 2-Senior US Democrats want Obama to keep FDIC chief
(Adds Frank comments, background, byline)
By John Poirier
WASHINGTON, Dec 4 (Reuters) - Democrats in Congress are urging President-elect Barack Obama to keep Sheila Bair as chairman of the Federal Deposit Insurance Corp and possibly give her a larger role to regulate mortgages, an influential U.S. lawmaker said on Thursday.
Rep. Barney Frank, chairman of the House of Representatives Financial Services Committee, also told reporters at a consumer protection conference that at the moment Congress would not be willing to release the second half of the $700 billion financial rescue package.
Frank, a Massachusetts Democrat, said that "at the very least" the Treasury Department would need to use the funds to halt home foreclosures in order to get the money.
He said he was heading back to his office to meet with Neel Kashkari, the Treasury Department official charged with administering the rescue package.
Bair, a Republican, enjoys the support of several influential members of the Democrat-controlled Congress, including Senate Banking Committee Chairman Christopher Dodd of Connecticut.
She has been vocal about quickly dedicating money directly to help troubled homeowners facing foreclosure.
Frank said he and Dodd are urging Obama to keep her at the helm of the regulatory agency, which also insures bank deposits.
The Obama transition team had no immediate comment. A Dodd spokeswoman could not immediately be reached for comment.
"At the very least stay on, and I think she should be given a broader role in helping formulate policy on mortgage foreclosures," Frank said when asked if Bair should head the agency.
Bair has argued that banks and the whole economy would be better off if mortgages are restructured to affordable payments, rather than sell properties in foreclosure proceedings. She supports spending up to about $25 billion from the financial rescue fund to share in the cost of defaults under such a program.
Treasury Secretary Henry Paulson has clashed publicly with Bair, saying the fund should be used to stabilize the financial system and is fundamentally an investment program, not a spending program.
Recent reports also have described a tense relationship between Bair and New York Federal Reserve Bank President Timothy Geithner, whom Obama has chosen to head the Treasury.
"I think part of the problem now is that, to be honest, Sheila Bair has annoyed the Old Boys Club," Frank told a Consumer Federation of America audience.
"And I think to some extent bank regulation and mortgage foreclosure has become a situation in which we have several regulators up in the tree house with a 'No Girls Allowed' sign hanging."
In outlining his agenda for next year, Frank said Congress will focus on consumer protection for credit cards and other loan products, balancing risk-taking for markets and securitization, and focusing on the unregulated entities, among others.
Financial institutions are bracing themselves for a massive regulatory overhaul not seen since President Franklin Roosevelt's New Deal program in the 1930s when the United States was trying to emerge from the Great Depression.
"Next year will be, I believe, the best year for public policy since the New Deal," Frank said. (Reporting by John Poirier, additional reporting by Caren Bohan; editing by John Wallace, Bernard Orr)
