WASHINGTON — The Senate overwhelming approved an amendment Wednesday that would preserve the Federal Reserve Board's oversight of state chartered-member banks and all holding companies.
The amendment, by Sen. Kay Bailey Hutchison, R-Tex., passed on strong bipartisan lines 90 to 9, and marks a significant change from Senate Banking Committee Chairman Chris Dodd's bill, which would have stripped Fed authority over all but the 55 largest holding companies.
The amendment would ensure the central bank continues to oversee the roughly 850 state-chartered banks and 5,000 holding companies.
The vote is a major victory for the Fed, which had appeared all but certain to lose power in the Senate bill. As late as January, lawmakers were clearly frustrated with the Fed's failure to prevent the financial crisis, and threatened to deny Chairman Ben Bernanke his renomination.
But since that time, the Fed Reserve Banks and their community bank allies launched an offensive to preserve the role of the central bank, arguing that stripping it of power over small banks would mean it lacked a window in local communities.
On the Senate floor Tuesday, Hutchison with her colleague Sen. Amy Klobuchar, D-Minn., again made the case for the Fed keeping its supervisory authority in order to prevent monetary policy being crafted to befit the largest financial institutions.
"If you take the Federal Reserve supervisory authority away from all of those community banks around the country … the regional banks no longer have input about what's going on in the smaller communities in our country," said Hutchison. "You're going to have "too big to fail" in reality and you're also going to have a monetary policy that is going to cater to the big financial institutions."