WASHINGTON - The Federal Reserve Board is putting the finishing touches on its alternative to the Clinton administration plan to merge the bank regulatory agencies.
The Fed ran the proposal by its 12 district bank presidents Tuesday and is expected to air it publicly during the first week in January.
"The Fed clearly realizes that you can't beat something with nothing or just with rhetoric," said one observer. That's why they are countering with their own plan."
A Blow to Central Bank
The Clinton administration approach, revealed in late November by Treasury Secretary Lloyd Bentsen, essentially cuts the Fed out of Bank supervision. A new Federal Banking Commission would be created, and it would regulate all banks and thrifts.
The Fed would continue to set monetary policy under the Clinton proposal and would be permitted to view exam reports on any institution. The administration's plan also gives the Fed one of five seats on the new commission's board.
But that's not what the Fed wants.
Fed officials have already made clear that they oppose concentrating regulatory authority in a single agency. The Fed wants to merge the four existing agencies into two so that banks retain a choice of regulators.
But beyond that, details of the Fed proposal have remained sketchy.
Fed Chairman Alan Greenspan has said he fears a single agency would be risk-averse and bogged down by red tape.
Power Sharing
Under the alternative drawn up by the Fed's governors, sources said, the central bank would share the power to write bank regulations.
The Fed argues that granting a new Federal Banking Commission complete control over rulemaking would give it too much power, according to people who have seen the central bank's proposal.
It was unclear Wednesday exactly how the Fed would divvy up rulemaking responsibilities, but one option under discussion would give the central bank power to write rules for state member banks and all bank holding companies.
The Fed also wants authority to examine the nation's largest banks regardless of their charter. These banks could be examined by both the Fed and the new commission, under the Fed's plan.
State banks that belong to the Fed system and their holding companies would continue to be regulated by the Fed. The new banking commission would regulate national banks and state nonmember banks and their holding companies.
Like the Clinton approach. the Fed proposal narrows the Federal Deposit Insurance Corp.'s role to that of insurer.
While past consolidation plans have come and gone, the Fed is, not taking the Clinton proposal lightly. Mr. Greenspan made the rare move of writing an opinion piece for The Wall Street Journal Dec. 15 titled "No Single Regulator for Banks."
Crisis Management
Mr. Greenspan acknowledged the need for some streamlining of the regulatory process but said the Clinton plan has "important and exceptionally serious drawbacks."
The Fed, according to Mr. Greenspan, successfully heads off potential crises because it is so close to the banking system.
"Our expertise is the result of dealing constantly, and in detail, with changing financial markets and institutions and their relationship with each other and with the economy," Mr. Greenspan wrote.
Monetary policy also depends on the Fed's close relationship with the banking industry, he said. For example, the Fed started easing interest rates in 1989 because exams turned up a tightening of bank lending standards.
