The Federal Reserve is likely to emerge as the most powerful regulatory agency in the Obama administration’s plan for overhauling financial market oversight, people familiar with the proposal said.
Treasury Secretary Timothy Geithner told Chairman Ben S. Bernanke in a June 9 meeting the administration will call for the Fed to be the regulator of firms deemed too big to fail, one of the people said. While a council of regulators would share oversight of financial risks, Treasury officials describe it as weak, lacking power to make final decisions on intervening with the firms, the people said.
The proposal is just the first step in what may become the biggest revamp of U.S. financial rules in seven decades, and will be subject to intense debate in Congress, analysts said. Its focus on the Fed clashes with rising skepticism among some lawmakers as to whether the central bank has appropriately used its emergency lending powers during the crisis.
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“No matter what Treasury proposes next week, Congress is going to play a very heavy hand in this,” said Camden Fine, president of the Independent Community Bankers of America, a Washington trade group. “It’s a fluid situation and it will remain fluid.”
Bernanke came under fire at a House Oversight Committee hearing yesterday for his role last year in what some legislators said was pressuring Bank of America Corp. to complete its takeover of Merrill Lynch & Co.