Senior Obama administration officials criticized a key provision of a Senate plan to overhaul the regulation of financial services, warning Friday that removing bank-oversight powers from the Federal Reserve would be a mistake.

The Fed "is the agency best equipped for the task of supervising the largest, most complex firms," said Deputy Treasury Secretary Neal Wolin. Stripping away those powers could prevent the central bank from gathering "timely and complete information in a crisis," he said.

Austan Goolsbee, a member of the White House Council of Economic Advisers, said the Fed should retain a central role in supervising the banking sector and that moves to merge oversight into a single agency could cause industry "nervousness."

The comments, made in separate appearances Friday, were the latest salvo in an increasingly high-stakes debate about the central bank's future role.

Senate Banking Committee Chairman Christopher Dodd (D., Conn.) seeks to create a new agency to supervise all federally chartered financial institutions, taking powers away from the Fed and the Federal Deposit Insurance Corp., among other agencies. Dodd's proposal aims to narrow the central bank's purview so it focuses more closely on monetary policy.

"The Federal Reserve flat out failed at supervising the largest, most complex firms," a spokeswoman for Dodd said in response to Wolin's remarks.

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