Jun. 24--PASADENA -- President Barack Obama's proposed regulatory overhaul of the financial system has ruffled the feathers of local community banks.

They are concerned that a new consumer protection agency, among other elements of the plan, would prompt more government intrusion in the already heavily regulated banking business.

"In my mind, it's an overreaching of what the government needs to do," said Jeffrey Ball, president and CEO of Friendly Hills Bank in Whittier. "This would be unprecedented. You could have a regulatory body go in and state how a private company could structure a certain product."

But Obama's proposed sweeping overhaul, unveiled last week, is a much-needed clamp-down on business practices that led to the nation's financial ills, supporters say.

The plan would usher in a new system of regulating banks and other financial institutions.

"The absence of a working regulatory regime over many parts of the financial system -- and over the system as a whole -- led us to near catastrophe," Obama said. "...I'm convinced that by setting out clear rules of the road and ensuring transparency and fair dealing, we will actually promote a more vibrant market."

Under Obama's plan, the Federal Reserve would be granted new authority to regulate bank holding companies and other large firms that pose a risk to the entire economy in the event of failure, Obama said. Such firms would be required to meet stronger capital and liquidity requirements.

During the housing boom six years ago, borrowers got loans at friendly rates, only to see lenders boost those rates, leading to foreclosures and ultimately fueling the crash of the financial system.

Companies rooted in or with connections to the San Gabriel Valley played a role in that crash. Pasadena-based IndyMac Bancorp Inc., for instance, collapsed under the weight of loan defaults on adjustable-rate mortgages.

In the wake of the collapse, officials reassigned a senior federal regulator in December after finding that he enabled IndyMac to present itself as "well-capitalized" only months before federal regulators seized it at a cost of $9 billion. A government report later found lax oversight of IndyMac by the Office of Thrift Supervision. Obama's plan aims to eliminate the office.

To toughen up oversight, the plan would create a council of federal regulators, including the Fed, which would monitor the market for risk. The Fed would ultimately be accountable for ensuring that companies don't make overly risky bets.