MSM: Senate bill could weaken the Fed (and how!)Submitted by SteveMT on Mon, 09/21/2009 - 14:11
This story tells me that we are winning.
Consensus in Senate builds to weaken Federal Reserve by stripping it of bank oversight
By Anne Flaherty, Associated Press Writer
Monday September 21, 2009, 1:37 pm EDT
WASHINGTON (AP) -- Consensus is building in the Senate for legislation that would significantly weaken the Federal Reserve by stripping its power to oversee banks and hand that job to a single federal bank regulator.
The proposal by Senate Banking Committee Chairman Christopher Dodd to merge federal prudential oversight into a single regulator differs from a plan by President Barack Obama. But it's gaining traction among Dodd's colleagues who think the Fed didn't do enough to prevent the current market crisis.
"If you look at the record here of the failure of the regulatory bodies, all roads seem to lead to the Federal Reserve," said Sen. Richard Shelby of Alabama, the top Republican on the banking panel.
Since its creation almost a century ago, the Fed has grown into a major power broker and guardian of the financial system. It plays various roles on the government's behalf in protecting the economy, including the supervision of banks to ensure the "safety and soundness" of the financial system and enforcement of rules to protect consumers.
But the Fed's primary mission is considered its role as the nation's central bank. In that capacity, it sets monetary policy and acts as a bank's "lender of last resort."
As part of a sweeping reform effort in response to last year's financial crisis, Obama has proposed empowering the Fed further by tasking it with deciding whether a financial institution has grown so big and over-leveraged that its failure could bring down the entire economy.
However, Obama would strip the Fed of its role in protecting consumers and create a separate government agency to enforce new rules on such products as credit cards and mortgages.
The idea of an emboldened new Federal Reserve isn't sitting well on Capitol Hill, where lawmakers have little power over the central bank. While the Fed frequently reports to Congress, it maintains an independent status aimed at keeping politics out of the nation's monetary policy.
The House Financial Services Committee is expected in coming weeks to consider legislation by Rep. Ron Paul, R-Texas, that would subject the Fed to increased audits by congressional watchdogs.