Paulson last month won the authority to inject capital into Fannie Mae and Freddie Mac, in legislation aimed at restoring confidence in the firms. Stocks and bonds issued by the two have since declined amid continued concern they lack sufficient capital.

Fannie Mae dropped 2.3 percent to $6.01 Tuesday, down 69 percent since the start of last month. Freddie Mac lost 5 percent to $4.17, a decline of 74 percent over the same period.

"Treasury is monitoring market developments vigilantly," spokeswoman Jennifer Zuccarelli said in a statement. "We are focused on encouraging market stability, mortgage availability and protecting the taxpayers' interests."

Lacker, 52, heads a district that is home to two of the four biggest U.S. banks, Bank of America Corp. and Wachovia Corp., both based in Charlotte, North Carolina.

A former head of research at the Richmond Fed, he alone dissented in rate votes at the Fed in late 2006, advocating higher rates to stem inflation. He votes again in 2009.

The Richmond Fed president warned in June that the Fed, by expanding its financial safety net, may prompt investors to take on excessive risk. Central bankers in March opened the discount window to investment banks and loaned $29 billion against a portfolio of Bear Stearns Cos. securities to facilitate a merger with JPMorgan Chase & Co.

Since Lacker made the June 5 speech in London, the Fed has made available the discount window to Fannie Mae and Freddie Mac and agreed to a change in the law making it easier for the central bank to loan to failed banks under government control. The Fed has also extended the availability of discount window lending to investment banks until January 2009.

Fed Bank Presidents Gary Stern and Tom Hoenig have also expressed concerns about the expansion of federal safety nets for financial institutions.

"The too-big-to-fail problem has once again gotten worse," Stern said in an Aug. 14 speech in Three Forks, Montana.

Lacker said in a separate interview with Bloomberg Radio he was wary of the Fed gaining more regulatory power. Congress, the Treasury Department and the central bank are reviewing regulation in light of the credit crunch. The Treasury has proposed giving the Fed more authority to safeguard market stability.

"Our ability to exercise independent judgment about the level of the policy rate I think is quite important," Lacker said. "I do see some merits to the argument that adding responsibilities could threaten to dilute the independence" that the Fed needs for monetary policy.

Continued Slump