The Irish Independent reports that taxpayers who forked out billions to rescue the banks will be kept in the dark for at least a year over the reasons for the financial crisis.

Opposition parties last night accused the Government of a "whitewash" and a "cover-up" as it announced its plans for a commission of inquiry, which will be largely conducted in private.

Under the plan, it is far from clear if Taoiseach Brian Cowen and other senior Fianna Fail politicians will ever face a public grilling.

The investigation, which will get under way immediately, will be multi-faceted:

• A panel of experts will carry out an initial investigation into the banking crisis, while the Central Bank governor will produce a report on the role of the bank and the Financial Regulator. They should report by the end of May.
• An Oireachtas committee, which will receive the reports, will meet the governor and the independent experts to detail what areas the Dail and Seanad want covered.
• An independent commission of investigation, to be modelled on the Murphy inquiry into child abuse in the Dublin archdiocese, will be set up by end of June, using the two reports to shape its terms of reference.
• The report of the commission of investigation will be finished within six months and go before the Oireachtas committee where it finally get a public hearing.

The plans were widely interpreted as stopping well short of the Green Party's demands for an open investigation with a significant element done by the Oireachtas. Instead, it was generally in keeping with what Fianna Fail ministers were believed to want. The Government expects the bulk of the work to be completed within a year.

The inquiry's remit will stop at September 2008, the time of the bank guarantee scheme, so it will look at the causes of the crisis, but not the Government's subsequent actions. Major decisions such as the nationalisation of Anglo Irish Bank and the recapitalisation of AIB, Bank of Ireland and Anglo will not be included.

Findings

The role of the Oireachtas in the inquiry was described as minimal by the opposition and there are fears it will take longer than a year.

Mr Cowen said he was available to cooperate with any aspect of the inquiry. Finance Minister Brian Lenihan said the initial reports would be done by the end of May with the commission of inquiry up and running by the end of June to report in six months.

When the commission completes its report, the Oireachtas will be "invited to consider the findings". The inquiry will not disturb the ongoing investigation by the Garda Fraud Squad and the Office of the Director of Corporate Enforcement into Anglo Irish Bank.

The Government is modelling the inquiry on the Murphy commission but it started out with a timeline of 18 months and reported back after three years.

Mr Lenihan was quite defensive of this decision last night, as he insisted he had already put all the information on those decisions in the public domain. "Government policy in response to the crisis is not being examined in this inquiry," he said.

Environment Minister John Gormley insisted there was no doubt an Oireachtas committee would have the power to compel anybody to appear before it.

"This is our clear intention. It will take place in public," he said.

Despite the Greens' demands for an open investigation in recent days, Mr Gormley said the format for the inquiry was the "perfect template".

He added: "Every box has been ticked here because certainly what I have been saying all along is it has to be effective, have a timeframe and involvement by the Oireachtas."

The Irish Independent also reports that a probe into possible wrong-doing at Anglo Irish Bank will take months to complete, Director of Corporate Enforcement Paul Appleby told a Dail committee yesterday.

Questioned repeatedly by TDs about when the probe might end and about any evidence handed over to the Director of Public Prosecutions, Mr Appleby remained tight-lipped, saying only that it would take "several months".

He noted that a similar probe into National Irish Bank began in 1998 and lasted six years. Subsequent court cases against nine officials were still waiting to be heard in seven cases, he added. "Obviously Anglo is similar, to an extent. First of all, it's a bank and there's a lot of work involved," Mr Appleby said, while adding that he did not expect the Anglo probe to last as long as that.

Officials

About one-third of Mr Appleby's officials are involved in the Anglo probe, which is the biggest since the office was set up in 2001. Officials, gardai, lawyers and computer experts are poring through seven million documents which have been seized from Anglo's headquarters in paper or electronic form.

Mr Appleby told the Oireachtas Committee on Enterprise, Trade and Employment that there had been good co-operation from current bank staff but declined to say whether all former Anglo workers were co-operating with the inquiry.

"From our perspective, Anglo is the largest and most complex investigation ever undertaken by us," Mr Appleby said yesterday.

This newspaper revealed last week that Mr Appleby's officials had not yet spoken to former Anglo chief executive Sean FitzPatrick about the bank's problems.

The Irish Times reports that the High Court inspector who investigated allegations of insider trading by former DCC chief executive Jim Flavin found that the company had “good and effective corporate governance”.

Bill Shipsey SC said in his report that, contrary to the “understandable apprehension” of the Director of Corporate Enforcement Paul Appleby at the time of his appointment as inspector in 2008, his concerns were “largely unfounded”.

“The good news from the perspective of the director, and corporate compliance in Ireland, is that the court, the public and the market can be assured and take comfort from the fact that one of Ireland’s largest listed public companies had a well-developed culture of compliance, maintained high corporate standards and was a good corporate citizen, notwithstanding the costly error of appreciation by its then chief executive,” wrote Mr Shipsey.

DCC and its subsidiaries, SL Investments and Lotus Green, took their corporate responsibilities “very seriously” and had “good and effective corporate governance procedures and controls at board level”, said Mr Shipsey.

“The directors, officers and employees, from the then chief executive down, placed a high value on legal and regulatory compliance,” he concluded.

The officers and executive directors of the companies were “qualified, competent and careful individuals” and DCC “attracted and retained highly experienced and quality non-executive directors”, he said.

The companies took legal advice “when it was appropriate to do so” and followed it, he said.

“At a time when Ireland Inc was taking a beating internationally from the perception of low standards in high corporate places”, the actions and behaviour of DCC and its subsidiaries “measured up to the standards required by law notwithstanding Mr Flavin’s error of judgment”, Mr Shipsey concluded.

There were “facts and circumstances” which suggest that Lotus Green’s decision “not to make the necessary notification” of a beneficial interest in just over 10 per cent of Fyffes’ share capital in 1995 breached company law, he said, but this was done on legal advice.

“The decision not to notify was made, however, with the benefit of legal advice from the companies’ trusted and respected legal adviser and, in all the circumstances, it was not unreasonable for the directors of the companies to follow that advice,” said Mr Shipsey.

“I have also concluded that the legal advice, which I believe to have been incorrect, was given in good faith and in the firm belief that it was correct.”

The inspector said that the decision of DCC and SL to transfer the Fyffes interest to Lotus Green in 1995 “does not give rise to facts or circumstances” suggesting that company law was breached.

Mr Shipsey said that a shareholder’s “consideration” to sell its shares in a publicly quoted company, “divorced from any knowledge or awareness of price sensitive information about that publicly quoted company”, did not itself infringe company law.

The fact that the sale of a shareholder’s stake in a public company might affect the price could not constitute “insider dealing” within the meaning of company law.

“If it did, a shareholder in DCC’s position could never sell its shares for fear of what effect the sale of the shares might have on the publicly quoted company’s share price,” said Mr Shipsey’s report.

Even if he was wrong in his interpretation, he does not believe that a transfer within the same group could ever be described as a “fraud on the market”, said Mr Shipsey.

There was “an admitted failure” to serve a notice to the stock exchange fulfilling one section of company law when the Fyffes shares were sold in 2000 but there were three announcements which “fulfilled in substance, if not in form” stock exchange notification.

The Irish Times also reports that foreign direct investment (FDI) into Ireland bounced back in 2009, according to a new report from a United Nations agency.

The UN Conference on Trade and Development (Unctad), the single most comprehensive source of data on FDI flows, said that foreign investment into Ireland amounted to $14 billion (€9.8 billion) in 2009, after the previous year saw a net outflow of $20 billion (€14 billion).

Most European countries recorded net inflows of FDI in 2009, with only Hungary seeing outflows. However, the value of the investment that did pour into EU member states was down 29 per cent on 2008.

In this scenario, Ireland was one of only six countries to record an increase in FDI last year.

According to estimates from Unctad, net inflows into EU member states reached a total of $356.7 billion (€250 billion) last year compared to more than half a trillion in dollar terms in 2008.

On a global basis, inflows of FDI fell by 39 per cent from $1.7 trillion to a little over $1 trillion in 2009. The decline was experienced over the full year, with no pick-up in the fourth quarter.

The agency said the decline in FDI was widespread across all major groups of economies.

The Irish Examiner reports that key Government decisions that saw billions of euro of taxpayers’ money used to bail out the banks will not form part of the banking inquiry.

Finance Minister Brian Lenihan rejected claims the bailout had been a "conspiracy" to help bankers and developers. But he similarly rejected suggestions the Government should open up its books to convince the public there had been no conspiracy.

The minister announced details of the two-stage inquiry yesterday, the bulk of which will be done by a commission behind closed doors, a decision that led to opposition claims of a "whitewash".

Mr Lenihan also said that only matters up to September 2008 would be investigated – the month when the crisis erupted and the Government rescued the banks.

The inquiry’s purpose was to determine the causes of the crisis rather than examine Government’s efforts to solve it, he said.

"Clearly, where the Government made decisions such as the [bank] guarantee, such as the nationalisation of Anglo, the capitalisation of Allied and Bank of Ireland, these decisions were fully debated in the House. I’m fully accountable to the House for them," he said. "And the idea that there was some kind of a conspiracy – or that the Government should simply open up its own government books and subject itself to a tribunal of inquiry on how it has done its business in government – I would reject that completely."

The first stage of the inquiry will see two separate reports completed by the end of May, one by the Central Bank governor and the other by an independent expert.

These reports will form the basis for the second stage – a Commission of Investigation sitting in private to examine the issues raised. The commission is due to issue its report by the end of the year and it will then go before an Oireachtas committee.

Fine Gael leader Enda Kenny claimed the format amounted to a "self-protection racket", while Labour leader Eamon Gilmore claimed it was a "whitewash".

The Financial Times reports that China’s top banking regulator on Wednesday signalled the introduction of further restrictions to curb lending while saying loan growth would slow considerably this year.

In recent weeks, China has stepped up measures to curb the pace of credit growth, after banks last year extended a record Rmb9,600bn ($1,406bn) in new loans as part of the country’s stimulus package.

Speaking in Hong Kong, Liu Mingkang, chairman of the China Banking Regulatory Commission, forecast banks would issue a more subdued Rmb7,500bn in new loans this year. That would mean a rise of 16-18 per cent in total outstanding loans on an annual basis and would mark a sharp deceleration from the 32 per cent rise in 2009.

Last year’s massive rise in lending has raised concerns that the credit expansion would fuel asset bubbles in real estate and stock market investments, which in turn could spark a damaging rise in banks’ non-performing loans ratios.

Mr Liu said Chinese banks had been told to “heighten vigilance” against a rise in credit risks. He added that the regulator was increasing scrutiny of second loans, in particular those relating to local government-sponsored projects, and was taking action against those banks which were concentrating lending risks.

He also said that the commission had placed 190 banking institutions under better examination, although he did not name them, and said that some banks had been asked to limit lending because they had failed to meet certain requirements, including capital.

However, Mr Liu stressed that China had a large aggregate provisioning cushion: “We are confident that the risks envisaged can be absorbed.”

On regulation, he said that the CBRC would soon issue new leverage and liquidity ratios and prevent banks from guaranteeing corporate bonds.

Mr Liu said Chinese banks “need to [get] ready for the wrong kind of borrowers and the wrong kind of weather”.

China’s central bank last week unexpectedly raised the reserve requirements on its lenders – the first increase in 18 months. The ratio for big banks was raised this week by 50 basis points to 16 per cent.

Mainland media reports suggest that new lending by Chinese banks has already exceeded Rmb1,000bn this month, prompting authorities to react swiftly to rein in loan growth.

The FT also reports that the Group of 20 should develop voting procedures and “metamorphose” to become the governing body of the International Monetary Fund to enhance its legitimacy and promote balanced world growth, Mervyn King, governor of the Bank of England, said on Tuesday night.

Setting out his concerns that the global economic recovery has started to widen trade imbalances, Mr King warned that protectionist forces would rise unless countries tackled unbalanced growth and misaligned real exchange rates.

“There is a risk that countries will, out of frustration, impose unilateral and ultimately self-defeating protectionist responses,” he said.

He praised the G20 as a body that represented 90 per cent of global output but said its reputation would soon be damaged if the body did not go further than simply talking to each other. “Smiling family photographs marking the attendance at international gatherings are no substitute for specific actions.”

His main message was that surplus countries – China, other Asian nations, Japan, Germany and oil exporters – “must expand domestic demand and allow their trade surpluses to shrink”.

Although Mr King stressed this was easier said than done, he warned that low-savings countries – such as the US and UK – would no longer be able to play the role of consumer of last resort. “It will require changes in prices and most obviously in real exchange rates,” the governor said.

To enhance agreements reached at the G20 to reduce imbalances, he suggested its “legitimacy and leadership ... would be enhanced if it were seen as representing views of other countries, too”.

“That could be achieved if the G20 were to metamorphose into a governing council for the IMF, and at the same time acquire a procedure for voting on decisions,” Mr King said.

But in a sign that the fights over the legitimacy of the G20 were still only at an early stage, Jean-Claude Juncker, who heads the eurogroup of eurozone finance ministers, said it was unsatisfactory that the only eurozone representative at G20 events was Jean-Claude Trichet, the European Central Bank president.

The European Commission is expected to propose soon that a political representative of the 16-nation eurozone should attend meetings of the G20, partly to strengthen Europe’s voice in exchange rate discussions.

Mr Juncker’s remarks underlined the determination of policymakers to boost the eurozone’s international profile and strengthen its internal cohesion under the provisions of the European Union’s Lisbon treaty, which came into effect in December.

“The eurogroup has to become a member of the G20 because the currency isn’t at the moment represented by its political president, if I may say so, but only by its monetary policy arm, which is Mr Trichet,” Mr Juncker told reporters. “This creates an imbalance in the representation of the eurozone.”

Europeans are already present in large numbers at G20 summits. France, Germany, Italy and the UK are permanent G20 members, Spain has attended recent events and the EU is represented separately by the Commission and the ECB. This has led to criticism from some non-Europeans that Europe has too many seats at the table.

The same point crops up in discussions of the relative weights of countries in the the IMF.

Olli Rehn, the Finn who has been nominated as the EU’s next economic and monetary affairs commissioner, said last week that he intended to draft proposals for boosting the eurozone’s representation at the G20 and other international economic forums.

“Currently we punch below our weight. By standing united, we can lead, not only follow,” Mr Rehn told his confirmation hearing at the European parliament.

Mr Juncker made clear that one factor purpose driving the quest for G20 representation was the view of some EU leaders, such as Nicolas Sarkozy, the French president, that the eurozone was suffering from global currency misalignments.

“The relationship between the major currencies isn’t adequately regulated from a eurozone point of view,” Mr Juncker said, in an implicit echo of Mr Sarkozy’s criticism of the US authorities this month for letting the dollar depreciate against the euro.

Mr Juncker said the goal of eurozone governments was an exchange rate policy “more focused on the representation of European interests”.

Mr Juncker, who was reappointed on Monday as the eurogroup’s leader for a two-and-a-half 2½-year term, indicated that he was not proposing to substitute himself at G20 events for representatives of individual eurozone countries.

Europeans are already present in large numbers at G20 summits. France, Germany, Italy and the UK are permanent G20 members, Spain has attended recent G20 events and the EU is represented separately by the Commission and the ECB.

This has led to criticism from some non-Europeans that Europe has too many seats at the table.

The New York Times reports that Scott Brown, a little-known Republican state senator, rode an old pickup truck and a growing sense of unease among independent voters to an extraordinary upset Tuesday night when he was elected to fill the Senate seat that was long held by Edward M. Kennedy in the overwhelmingly Democratic state of Massachusetts.

By a decisive margin, Mr. Brown defeated Martha Coakley, the state’s attorney general, who had been considered a prohibitive favorite to win just over a month ago after she easily won the Democratic primary.

With all precincts counted, Mr. Brown had 52 percent of the vote to Ms. Coakley’s 47 percent.

“Tonight the independent voice of Massachusetts has spoken,” Mr. Brown told his cheering supporters in a victory speech, standing in front of a backdrop that said “The People’s Seat.”

The election left Democrats in Congress scrambling to salvage a bill overhauling the nation’s health care system, which the late Mr. Kennedy had called “the cause of my life.” Mr. Brown has vowed to oppose the bill, and once he takes office the Democrats will no longer control the 60 votes in the Senate needed to overcome filibusters.

There were immediate signs that the bill had become imperiled. House members indicated they would not quickly pass the bill the Senate approved last month.

And after the results were announced, one centrist Democratic senator, Jim Webb of Virginia, called on Senate leaders to suspend any votes on the Democrats’ health care legislation until Mr. Brown is sworn into office. The election, he said, was a referendum on both health care and the integrity of the government process.

Beyond the bill, the election of a man supported by the Tea Party movement also represented an unexpected reproach by many voters to President Obama after his first year in office, and struck fear into the hearts of Democratic lawmakers, who are already worried about their prospects in the midterm elections later this year.

Mr. Brown was able to appeal to independents who were anxious about the economy and concerned about the direction taken by Democrats, now that they control both Beacon Hill and Washington. He rallied his supporters when he said, at the last debate, that he was not running for Mr. Kennedy’s seat but for “the people’s seat.”

That seat, held for nearly half a century by Mr. Kennedy, the liberal lion of the Senate, will now be held for the next two years by a Republican who has said he supports waterboarding as an interrogation technique for terrorism suspects, opposes a federal cap-and-trade program to reduce carbon emissions and opposes a path to citizenship for illegal immigrants unless they leave the country. It was a sharp swing of the pendulum, but even Democratic voters said they wanted the Obama administration to change direction.

“I’m hoping that it gives a message to the country,” said Marlene Connolly, 73, of North Andover, a lifelong Democrat who said she cast her first vote for a Republican on Tuesday. “I think if Massachusetts puts Brown in, it’s a message of ‘that’s enough.’ Let’s stop the giveaways and let’s get jobs going.”

Mr. Brown ran strongest in the suburbs of Boston, where the independent voters who make up a majority in Massachusetts turned out in large numbers. Ms. Coakley did best in urban areas, winning overwhelmingly in Boston and running ahead in Springfield, Worcester, Fall River and New Bedford, but her margins were not large enough to carry her to victory.

In a concession speech before cheering supporters, Ms. Coakley acknowledged that voters were angry and said she had hoped to deal with the concerns.

“Our mission continues, and our work goes on,” she said, echoing well-known remarks by Mr. Kennedy. “I am heartbroken at the result, as I know you are, and I know we will get up together tomorrow and continue this fight, even with this result tonight.”

The crowd at Mr. Brown’s victory rally, upset by reports that Democrats might try to vote on the health care bill before he takes office, chanted, “Seat him now!” Mr. Brown, for his part, noted that the interim senator holding the seat had finished his work, and that he was ready to go to Washington “without delay.” And he effusively praised Mr. Kennedy as a big-hearted, tireless worker, and said that he hoped to prove a worthy successor to him.

Ms. Coakley’s defeat, in a state that Mr. Obama won in 2008 with 62 percent of the vote, led to a round of finger-pointing among Democrats. Some criticized her tendency for gaffes — in a radio interview she offended Red Sox fans when she incorrectly suggested that Curt Schilling, a beloved former Red Sox pitcher, was a Yankee fan — while others criticized a lackluster, low-key campaign.

Mr. Brown presented himself as a Massachusetts Everyman, featuring the pickup truck he drives around the state in his speeches and one of his television commercials, calling in to talk radio shows and campaigning with popular local sports figures.

The implications of the election drew nationwide attention, and millions of dollars of outside spending, to the race. It transformed what many had expected to be a sleepy, low-turnout special election on a snowy day in January into a high-profile contest that appeared to draw more voters than expected to the polls. There were reports of traffic jams outside suburban polling stations, while other polling stations had to call for extra ballots.

The late surge by Mr. Brown appeared to catch Democrats by surprise, causing them to scramble in the last week and a half of the campaign and hastily schedule an appearance by Mr. Obama with Ms. Coakley on Sunday afternoon.

“Understand what’s at stake here, Massachusetts,” Mr. Obama said in his speech that day, repeatedly invoking Mr. Kennedy’s legacy. “It’s whether we’re going forwards or backwards.” He all but pleaded with voters to support Ms. Coakley, to preserve his agenda.

As voters went to the polls, Robert Gibbs, the White House press secretary, made it clear that the president was “not pleased” with the situation Ms. Coakley found herself in. “He was both surprised and frustrated,” Mr. Gibbs said.

Although the race has riveted the nation largely because it was seen as contributing to the success or defeat of the health care bill, the potency of the issue for voters here was difficult to gauge. That is because Massachusetts already has near-universal health coverage, thanks to a law passed when Mitt Romney, a Republican, was governor.

Thus Massachusetts is one of the few states where the benefits promised by the national bill were expected to have little effect on how many of its residents got coverage, making it an unlikely place for a referendum on the health care bill.

On Capitol Hill, the fate of the health care legislation was highly uncertain as Democratic leaders quickly gathered to plot strategy in the wake of the Republican victory.

Sentiment about how to proceed was mixed, with several lawmakers saying the House would not accept the Senate-passed plan. Top officials had said that approach was the party’s best alternative, and many members said they still believed it was crucial that Democrats pass a plan.

“It is important for us to pass legislation,” said Representative Baron P. Hill, a conservative Democrat from Indiana.

The NYT also reports that President Obama on Tuesday stepped into the middle of a fierce lobbying battle by reinforcing his support for an independent agency to protect consumers against lending abuses that contributed to the financial crisis. The president’s move also signaled a tougher line and a more direct role as Congress weighs an overhaul of banking regulation.

The financial industry and Congressional Republicans have singled out the administration’s proposed consumer agency in particular, hoping to greatly weaken if not kill it. With liberal Democrats and Web commentators fighting just as hard for a strong independent office, the issue is becoming the central flashpoint in the debate over regulation.

Mr. Obama personally weighed in on Tuesday in a one-on-one meeting at the White House with Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Senate Banking Committee. Reports last week suggested that Mr. Dodd might drop the consumer agency from the emerging Senate bill in order to attract support from Republicans and some centrist Democrats on his committee, but Democratic aides disputed that.

Some Democrats in Congress and the administration describe a possible fallback position that would give enhanced consumer protection powers to existing federal regulators, perhaps to the Treasury. The banking lobby would prefer that over an independent agency.

While administration officials declined to discuss the Obama-Dodd meeting, one said the president’s proposal for a consumer protection office was “nonnegotiable.” The administration sees political advantage in that position, believing that a consumer protection agency is the element mostly likely to be popular with the public in a complicated bill.

Coming days after Mr. Obama proposed a new tax on the nation’s biggest banks to recover taxpayer losses from the 15-month-old financial bailout, the meeting on Tuesday suggested the White House would become more active in taking on industry lobbyists who have gained the upper hand in the Senate, winning support from Republicans and some moderate Democrats.

More broadly, Democrats say that Mr. Obama’s stances on the consumer agency and the new tax on big banks, together with his public comments assailing the banks, suggests an effort to position himself as more of a populist fighter at the opening of a midterm election year.

As the president ends his first year in office, he confronts lower poll numbers and a perception among many liberals and independents that his administration has been too close to Wall Street and more consumed by overhauling health insurance than fixing the overall economy.

That narrative forced a political recalibration at the White House even before Democrats this month found their party in a sudden fight to keep the Massachusetts Senate seat long held by Edward M. Kennedy — a race interpreted partly as a referendum on the Obama administration. The unexpected competitiveness of that contest has accelerated the partisan skirmishing typical of an election year.

Rhetoric aside, administration officials say Mr. Obama’s positions are nothing new. “These are things he’s been fighting for since long before he took office,” said Jennifer R. Psaki, the deputy White House communications director. But many Democratic operatives and activists say it is past time for the White House to become more engaged in challenging Republicans, and that the administration’s reticence about appearing too partisan has enabled the out-of-power Republicans to shirk any responsibility for the financial crisis and high deficits Mr. Obama inherited.

“The midterm elections started for the Republicans the day Obama was sworn in and they declared war on him from the get-go,” said Geoff Garin, a Democratic consultant and pollster.

Mr. Obama’s push for bank fees and now for the consumer protections comes just as the largest banks are about to announce their multibillion-dollar bonus packages for top executives and earners — as he noted in recent days in some of his most populist comments to date.

In Boston on Sunday to campaign for the Democratic Senate candidate, Martha Coakley, Mr. Obama seized on the bank fee issue to distinguish her from her Republican rival, Scott Brown.

“Instead of taking the side of working families in Massachusetts, Martha’s opponent is already walking in lockstep with Washington Republicans, opposing that fee, defending the same fat cats who are getting rewarded for their failure,” Mr. Obama told the appreciative crowd.

But banking lobbyists say such offensives will not help Mr. Obama.

“Maybe the administration will decide that they want to turn this into a partisan battle but, coming out of health care, I don’t think the majority of senators want to have a partisan battle,” said Edward L. Yingling, president of the American Bankers Association. “They want a bipartisan bill.”

Yet many Democrats and liberal activists are holding Mr. Obama to his proposal for an independent office for consumers’ financial protection.

“The consumer agency is the litmus test,” said Elizabeth Warren, the Harvard law professor who has been an outspoken chairwoman of the Congressional Oversight Panel on the financial bailout.

“Is the financial reform bill designed to paper over problems and continue to protect the banks, or is this bill about serious reform?” she continued. “It’s the banks versus the people, and it’s time to choose. For me, that’s the frame, and that’s what the conversation is about. If the White House forces that choice on the Congress, then we’re getting the leadership we need.”

As proposed by the Obama administration last June, the Consumer Protection Financial Agency would be governed by a board appointed by the president and financed partly by fees on the regulated companies.

Mr. Obama proposed that it would have power over banks, credit unions and mortgage brokers, and oversee products including mortgages, credit cards, loan servicing, consumer-reporting data, debt collection and real estate settlements. But the House, in the regulatory bill it approved last month, exempted smaller community banks, credit unions, retail merchants and certain other companies — leaving mainly big banks under the agency’s oversight.

Now in the Senate, the proposal for an agency has faced stiff opposition from Senator Richard C. Shelby of Alabama, the senior Republican on the Banking Committee, and come under intense criticism from the industry.