Fed faces fight in Senate’s bank reform debate

By Kevin Drawbaugh and Andy Sullivan

WASHINGTON (BestGrowthStock) – The Federal Reserve’s cherished secrecy will be challenged in the U.S. Senate on Thursday in the debate over Wall Street reform, with a running battle over consumer protection also being rejoined.

The Senate started its second day of votes on a Democratic reform bill by approving an amendment that would result in large banks paying more for deposit insurance, while smaller banks would pay less to the Federal Deposit Insurance Corp.

The amendment, approved by a vote of 98-0, reflected the increased clout of small banks on Capitol Hill since the 2008-2009 financial crisis, which has deeply damaged the political standing of big banks and Wall Street.

Lawmakers are undertaking a sweeping rewrite of U.S. financial rules to try to build a system less prone to crises. The future profitability of Wall Street firms could hang in the balance.

The Senate made progress on its massive regulatory reform legislation on Wednesday, approving amendments to create a new protocol for dismantling distressed financial firms, and to bar use of taxpayer funds to bail out financial institutions.

Approval of the bill was expected within two to four weeks, but thorny disputes loom ahead, with more than 80 amendments in circulation on a range of topics. The banking industry (Read more about the banking industry recovery.) was watching closely for changes that could threaten its risk capacity, growth potential and profitability.

FED ALSO UNDER FIRE

Along with Wall Street and the big banks, the Fed has come under heavy fire with many lawmakers blaming it for failing to detect and head off the crisis.

Senator Bernie Sanders wants to amend the regulatory reform bill to open the U.S. central bank to broader congressional audits, and force it to disclose information about its role in the 2008-2009 Wall Street bailouts.

The Fed has fought to block the amendment. Sanders, an independent who votes with Democrats, said in an interview on the cable channel C-SPAN on Thursday that the Treasury Department has been working against his measure, as well.

Sanders said he expected a vote on his amendment as soon as Thursday and he urged senators to take a stand against “the huge money and pressure” being deployed against his proposal.

“This amendment does not take away the ‘independence’ of the Fed and does not put monetary policy into the hands of Congress,” he said on the Senate floor on Wednesday.

The Fed, which has taken unprecedented actions to battle the financial crisis and deep recession, has worked fiercely to protect its tradition of secrecy, warning of the potential for political interference in its core monetary policy mission.

Another part of the Democratic reform bill would set up a financial consumer protection watchdog bureau within the Fed.

Senator Richard Shelby, the top Republican member of the Senate Banking Committee, is offering an amendment that would instead put the watchdog in the FDIC and give it less independence.

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(Editing by Theodore d’Afflisio)

Fed faces fight in Senate’s bank reform debate