WASHINGTON -- The Senate's top Banking Committee Republican says a pending overhaul of financial regulations is flawed because it does not impose controls on giant government-sponsored mortgage finance companies.
Sen. Richard Shelby, R-Ala., singled out the two largest firms, Fannie Mae and Freddie Mac, which have been blamed for creating a demand for risky loans and inflating the housing bubble.
"Their legislation to reform the financial system touches nearly every corner of the economy," Shelby said of the Democratic regulatory proposal. "But these major contributors to the crisis are left unscathed."
Shelby made his comments Saturday in the Republicans' weekly radio and Internet address.
The financial legislation, the most sweeping changes in banking rules since the Great Depression, aims to prevent a recurrence of the near-meltdown that buckled Wall Street in 2008.
The Senate bill would create a council of regulators to oversee risks in the financial system and set up a mechanism to liquidate companies that are too large and interconnected to go through bankruptcy. It also would create an independent consumer protection bureau to police lending and bring previously unregulated complex securities under government oversight.
The Senate is debating the bill. The House passed similar legislation in December.
Obama administration officials have said that while the housing market remains unstable, it is too early to undertake wholesale changes in the housing finance system.
Fannie Mae and Freddie Mac buy mortgages from lenders and package them into bonds that are resold to global investors. When the housing bubble burst, the government had to step in and take them over.
Shelby and fellow Republican Sens. John McCain of Arizona and Judd Gregg of New Hampshire have proposed an amendment to the legislation that would require the government to give up control of Fannie and Freddie within two years and then take steps to get out of the business of mortgage finance. It would also repeal the companies' mandates to promote affordable housing.
A vote on the amendment could occur as early as Tuesday.
Shelby also criticized the bill's consumer protection provisions, saying they overreach and could affect businesses that are not primarily financial firms. He also said the bill's call for an independent consumer protection bureau within the Federal Reserve would pose risks because it would separate consumer protections from regulators who look out for the safety and soundness of banks.
An alternative consumer provision offered by Republicans last week failed, with two Republicans joining all Democrats in voting in down.