Indiana Grain Company, LLC

Posted: 03/17/10

By: tomgrisafi

In the details of the financial reform legislation introduced this week are fundamental changes to the Federal Reserve that would shift power from the regional Fed banks around the country and concentrate it in Washington and New York.

By altering the traditional balance of power, the bill put forward by the Senate banking committee's chairman Christopher Dodd would recast the workings of the Federal Reserve System, a unique structure set up a century ago to distribute authority and ensure the central bank was not dominated by the nation's political and financial capitals.

That is why the Senate bill is provoking dismay among many officials at the regional Fed banks even as the Fed, on the surface, appears to be a big winner. The legislation allows the Fed to maintain its role in overseeing the country's largest banks while awarding it even more power to protect consumers and monitor the financial system for emerging risks. The central bank would also continue its most prominent job of managing the nation's monetary policy.

The Fed, however, would be stripped of its role in regulating all but the few dozen largest financial firms. The oversight of almost 6,000 small and midsize banks, one of the major tasks carried out at the 12 regional Fed banks, would be taken over by other federal agencies.

Regional Fed banks that do not have many large banks in their districts could see their staff and authority shrink, reducing these banks to something akin to regional economic think tanks rather than powerful overseers of the financial system.

Source: Bloomberg, Wall Street Journal, Washington Post

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