Fed Retains Oversight of Largest Banks, But Smaller Banks Howling

March 8, 2010

(ChattahBox)—After months of congressional Fed bashing, it looks like the Federal Reserve will retain oversight authority over the nation’s largest institutions. The original regulatory reform plan drawn up after the near collapse of the financial system, proposed granting the Fed greater powers to quickly step in and wind down failing banks. But many members of congress, distrustful of the Fed, opposed handing over more powers to a big government agency. Now, it appears a compromise has been reached with Republicans and Fed bashers, allowing the Fed to keep oversight control over 23 of the largest financial institutions. But, the smaller regional banks will fall under a new oversight plan and they are not happy about the prospect. Regional bank presidents have engaged in an aggressive lobbying campaign to keep their institutions within the Federal Reserve.

According to the Financial Times, Sen. Chris Dodd (D-CT) chairman of the powerful Senate banking committee plans to propose that banks having more than $100 billion in assets would remain under the purview of the Fed. And as a check on the Fed’s powers, a bankruptcy judge would play a role in winding down failed banks, as well.

Dodd’s new proposal is seen as a partial victory for Treasury Secretary Tim Geithner, who argued that only the Fed is qualified to oversee the nation’s complex banking system. It appears the central bank will lose the oversight of the smaller banks, but their lobbying efforts to remain under the fed are intensifying:

“Until, frankly, chairman [Ben] Bernanke was confirmed I think the Fed’s hands were kind of tied,” said a banking industry figure who has held discussions with one of those Fed presidents. “Now he is chairman for the next four years…the Fed has been able to be more aggressive in fighting for its authority. The regional Fed presidents have the most to lose if – as the current draft legislation has it – the central bank retains big banks but loses mid-sized institutions, which are part of the Fed system’s reason for being.”

The oversight issue will be taken up by the Senate banking committee this week, along with consumer credit card reform.

See the Financial Times for more.


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