WASHINGTON — A leading Republican on the House Financial Services Committee Thursday offered a sharp rebuke of recent Federal Reserve Board moves, calling for the central bank to lose its authority to supervise banks and have its emergency lending powers further curtailed.

On the same day Fed Chairman Ben Bernanke was expected to announce new central bank steps to boost the economy, Rep. Scott Garrett said in a speech to American Banker's Regulatory Symposium that a "growing number of my colleagues, on both sides of the aisle, are very concerned with the radical and unprecedented actions taken by the Fed."

"When the Fed uses arcane and questionable emergency authority, there will be additional scrutiny. When the Fed abuses their typical open market operations to manipulate the rate curve, there will be additional concern," said Garrett, who is said to be a potential candidate to chair the Financial Services Committee next year. "When the Fed expands its balance sheet to $3 trillion, elected representatives will ask questions. We would not be doing our job if we did not."

The New Jersey lawmaker said the Fed's authority to regulate state member banks conflicts with its job to oversee the broader economy. He also outlined several proposals being discussed in Washington for limiting the systemic risk of large banks. While not picking one idea as his favorite, he said the Dodd-Frank Act had not ended "too-big-to-fail."

Garrett said he would prefer that prudential authority over banks be placed in one consolidated agency, which some lawmakers had favored during the financial reform debate. That, he said, would allow the Fed "to focus on …[a] core mission of conducting monetary policy."

"How can the Fed independently make appropriate monetary policy decisions, which have an extraordinary impact on the large financial institutions they regulate, without considering how those monetary decisions will financially impact those same institutions?" he said.

He said conflicts between the Fed's multiple roles can be illustrated by the number of large commercial banks holding billions of dollars of low-rate, long-term mortgages. Garrett argued the value of those mortgages will decline when interest rates eventually rise, potentially leading to safety and soundness concerns for banks that could in turn sway the Fed's monetary policy decisions.

"It is impractical to believe, even though some might, that rates will stay this low for the next thirty years," he said. "At some point rates will have to go up and when they do, the value of these mortgages will go down creating potential major safety-and-soundness repercussions with some of these financial institutions."

Garrett also proposed limiting heads of the central bank to only one term — to avoid "Chairmen seeking re-nomination publicly supporting various fiscal policies out of self-interest."

The lawmaker also questioned the agency's emergency lending authority. Dodd-Frank restricted that authority by blocking specific aid to individual institutions facing collapse. But Garrett charged that the Fed's preserved authority to establish a lending facility available to all companies in a specific industry still gives it leeway to bail out a single firm if it wanted to.

That is "a loophole big enough to drive a multi-billion dollar bailout through, literally," Garrett said.

Separately, Garrett also highlighted a number of proposals floating around Washington to better deal with institutions deemed "too big to fail". Among the various ideas are reinstating Glass-Steagall, so-called "ring-fencing" to limit transactions between a depository and its capital-markets affiliate and adding a new section to the bankruptcy code specifically for dealing with failing financial institutions.

While he declined "picking a side today", Garrett said too-big-to-fail was not solved by the financial reform law.

"Let me be very clear, Dodd-Frank did not end TBTF," he said. "In fact, it made the problem far worse by having the government create a list of all of the TBTF institutions. All investors and creditors will now know exactly who is TBTF and where their money will be protected regardless of what happens to the firm."

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