Mr. Bernanke's pushback on the White House plan comes at a politically delicate time for the Fed chairman. His term expires early next year, and President Obama will have to decide whether to reappoint him.
In his second straight day on Capitol Hill, Mr. Bernanke argued that the Fed has expertise that would be difficult to replicate at a new agency. Consumer oversight, he said, coincides with the Fed's mission to oversee the safety and soundness of banks.
Addressing the Senate Banking Committee, Mr. Bernanke defended the Fed's record. Yet he acknowledged "that the Federal Reserve did not do all it should have at certain times in the past."
Consumer groups and lawmakers have blamed the Fed under Alan Greenspan for not cracking down early on dubious mortgage practices. High-risk mortgages fed the housing boom and led to its collapse.
Mr. Bernanke, who took over the Fed in February 2006, eventually pushed through tougher rules. Critics, though, said they came too late to ease the mortgage crisis. More recently, lawmakers have pressed the Fed to speed its adoption of rules to better protect Americans from abusive credit card practices.
The Fed plans to issue a proposal today to boost disclosures on mortgages and home equity lines of credit. It will include new rules covering the compensation of mortgage originators.
"We're going to ban the practice of tying the compensation to the type of mortgage -- having prepayment penalties, for example," Mr. Bernanke told lawmakers.
The administration has proposed a new consumer-protection agency as part of a broader revamp of the nation's financial rules. The agency would police deceptive practices in credit cards, mortgages and other products. Such oversight is now scattered among the Fed and other agencies.
If approved by Congress, the Consumer Financial Protection Agency could curtail or ban a host of dubious -- but lucrative -- bank practices, which include ballooning mortgages, excessive credit card rates and surprise overdraft fees.
In his testimony, Mr. Bernanke said the Fed should not only keep its consumer protection duties, but take steps to bolster oversight.
The Fed chief said:
- Congress could amend the Federal Reserve Act to make consumer protection a "major goal" of the central bank.
- Congress could require the Fed chairman to report on the state of consumer protection in the financial services industry.
- The Fed could conduct periodic reviews of whether its consumer policies are sufficient.
And Mr. Bernanke noted that when the Fed examines banks' safety and soundness, it also checks their consumer compliance.