Brady Dennis, Washington Post

Key members of the Senate banking committee are coalescing around legislation that would strip the Federal Reserve of much of its regulatory authority but would leave the central bank with oversight of the nation’s largest banks, according to aides familiar with the ongoing negotiations.

Under the plan, the Fed would continue to supervise only 23 bank-holding companies with assets exceeding $100 billion. Supervision of the nearly 5,000 banks below that threshold would fall largely to a proposed new regulator to be created by merging the Office of Thrift Supervision and the Office of the Comptroller of the Currency, aides said.

In addition, the Federal Deposit Insurance Corp. would take over regulation of more than 800 state-chartered banks that currently are part of the Federal Reserve System, according to the aides, who spoke on condition of anonymity because the talks are still ongoing and the provisions still could change.

Banking committee Chairman Sen. Christopher J. Dodd (D-Conn.) and freshman Republican Sen. Bob Corker (R-Tenn.) have been negotiating for weeks the particulars of a sweeping overhaul of the nation’s financial regulatory system and hope to have a draft within the next week.

Dodd’s initial draft of the bill last fall stripped the Fed entirely of its regulatory authority, leaving the central bank with the sole purpose of overseeing the nation’s monetary policy. The Fed’s prospects for retaining any oversight duties seemed uncertain at best, as committee members on both sides of the aisle heaped criticism on the agency for its failures in the lead-up to the financial crisis.

Read more here: http://www.washingtonpost.com/wp-dyn/content/article/2010/03/09/AR2010030903584.html