A bloc of Senate Democrats is calling for the replacement of a federal banking regulator who has been warning that the push to tighten oversight may be going too far.
The regulator, John Walsh, said Monday in London that the cumulative effect of all the rules now being considered could limit the ability of banks to make loans, and that restrictions on banks could simply push some kinds of financial activity beyond the ambit of federal oversight.
“I might have titled these remarks: Beware the pendulum,” said Mr. Walsh, who as acting comptroller of the currency is responsible for overseeing most of the nation’s large banks.
“My view is that we are in danger of trying to squeeze too much risk and complexity out of banking as we institute reforms to address problems and abuses stemming from the last crisis,” he said.
“We have to be able to figure out how far is too far, and when to stop.”
The speech has drawn an outraged reaction from proponents of tighter regulation. Senator Sherrod Brown, an Ohio Democrat, sent a letter Thursday to Treasury Secretary Timothy F. Geithner calling for Mr. Walsh to be removed from his position. Mr. Brown was the fourth Senate Democrat to do so. (Read the letter.)
The others are Senators Carl Levin of Michigan, Jeff Merkley of Oregon, and Jack Reed of Rhode Island.
“Mr. Walsh’s comments make painfully clear that he has no interest in learning from his agency’s past mistakes,” Mr. Brown wrote. “He should be removed from his position and replaced by a new comptroller who understands the painful lessons that we have learned.”
The immediate flashpoint is the question of whether large banks should be required to derive a larger portion of funding from selling stock rather than from borrowing money. Regulators are trying to reach an international agreement on this ratio, known as a bank capital requirement.
Mr. Walsh and the Office of the Comptroller of the Currency are pushing for a relatively modest increase in capital requirements, while the Democratic Senators are among those pushing for a more sizable increase.
The larger context is that Mr. Walsh already was an unpopular figure among many Democrats. His agency is widely perceived as particularly responsive to the concerns of the banking industry and has clashed often in recent years with the Federal Deposit Insurance Corp. and with consumer advocacy groups. Moreover, Democrats note that Mr. Walsh is a former Republican Congressional staffer.
He has served as acting comptroller since last August. The White House has not nominated a replacement and frustrations on Capitol Hill now are bursting into public view.