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By Ronald Fink
The chairman of the House Financial Services Committee has heeded critics who complained that the Obama administration's plan to overhaul bank regulation would give the Federal Reserve too much power.
The administration's plan for a council of federal financial regulators calls for the Fed to be able to overrule decisions made by the heads of the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, among others. The council is supposed to help coordinate policy decisions so banks can no longer shop for the most lenient regulator by adjusting their legal status to come under the purview of one or another.
But both Sheila Bair and John Dugan, the respective heads of the FDIC and OCC, objected to the idea of granting the Fed such authority. They argued it would undermine the council's effectiveness, since the Fed is vulnerable to the influence of the banking industry because banks nominate most of the members on the boards of regional Fed banks.
Bair went so far as to say such authority would prevent the FDIC from serving as "a check" on the Fed.
In response, House finance committee chairman Barney Frank (D-Mass.) said on Thursday the Fed would not be given that power under legislation to create such a council.
"There will not be a Federal Reserve power to overrule other entities," Frank said.
Limiting the Fed's authority in this way suggests the central bank's status as the so-called umbrella regulator of the financial system, which was granted by the Gramm-Leach-Bliley Act of 1999, will become largely symbolic.
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