WASHINGTON — In the days after President Obama's inauguration, Neil Barofsky, the chief watchdog overseeing the $700 billion federal bailout of the financial system, walked up from his office in the basement of the Treasury building to the ornate suite of the official running the rescue program.

Barofsky had a simple message: The government should require any bank receiving taxpayer dollars to explain how it is spending the money.

The senior official at the Treasury Department, Neel Kashkari, disagreed. So Barofsky, the special inspector general for the program, said his office would do it instead.

"I don't think Treasury's done enough," he said. "Frankly, I'm not terribly concerned if anyone in Treasury actually thinks we're being too aggressive. That's our job."

The episode illustrates why lawmakers and watchdog groups say Barofsky is emerging as the primary check on waste and fraud in the 6-month-old financial rescue effort. But Wall Street executives and Treasury officials criticize him as an overreaching zealot scaring banks from joining the financial rescue, and even his supporters wonder whether his office has sufficient resources to adequately oversee such a gigantic program.

The special inspector general now has 30 employees to monitor the mind-bogglingly complex bailout programs. Congress has not yet passed a law giving Barofsky's office the same hiring flexibility as other special inspectors general. The problem is exacerbated because of the staffing issues at the Treasury, where the compliance office for the bailout program has only seven employees.

"Twenty people for, what, 8,000 banks in this country?" said Rep. Patrick Kennedy, D-R.I., a member of the House oversight committee. "That's where concerns come in. Because before we're going to be able to pass another nickel in this Congress, we're going to have to get the due diligence on these things."

Barofsky, a 38-year-old former federal prosecutor who survived an assassination attempt during a case against Colombian drug dealers, has been working 14-hour days. He said he considers himself responsible for any of the government initiatives that use funds from the bailout program, whether or not they're run by Treasury. With the Federal Reserve putting up even more money, the total price tag has already reached $2.9 trillion, he estimates.

Though Barofsky refuses to eat with senior administration officials in the building's executive dining room to maintain his independence, he says he has a cooperative working relationship with Kashkari. But the difference in their approaches and priorities is highlighted by their disagreement over monitoring how banks are spending the bailout money.

Barofsky first recommended to department officials in December that they require banks to detail their use of the funds. But Kashkari made clear that he thought such a requirement would be too time-consuming and that it would be impossible to determine exactly what the banks did with the money.

"It's been very hard for us to say, well this dollar went for this purpose, the tax dollars went for another purpose," Kashkari said recently. "We've taken great care to not try to micromanage institutions."

Kashkari instead made a much narrower request of the banks, asking the top 20 recipients to report on how the funds affected their lending. They are expanding that request to all the banks. Barofsky's office took a more ambitious approach, demanding in a letter last month that every firm then in the program describe in detail how it was using the money.

Government officials said Barofsky's letter caused several banks to withdraw their applications for the program, and that his overall approach — along with public outrage over executives' multimillion-dollar bonuses — was part of the reason firms are afraid to participate in the bailout. "Some banks have said, 'Wow, this is scaring us,' " a senior Treasury official said.

The responses to Barofsky's letter are now stuffed into five brown cardboard boxes crowding a folding table, and a sixth one is stored elsewhere. Barofsky doubts that any bank has withdrawn from the program because of his letter but said it doesn't matter even if they have. "Any institution that is so concerned about having to report on its use of funds of taxpayer money," he said, "really calls into question what their intent was on how to use that money," he said.

His office has formed a council of inspectors general focusing on the bailout.