WASHINGTON — Call it the King Solomon approach to banking supervision by the Federal Reserve Board.

While Senate Banking Committee Chairman Chris Dodd has sought to strip the Fed of its authority over all but the 55 largest holding companies in his regulatory reform bill, Sen. Kay Bailey Hutchison wants to ensure it keeps its authority over all holding companies and state-chartered banks.

Now Sens. Jon Tester, D-Mont., and Mark Pryor, D-Ark., are quietly working on a compromise amendment to essentially split the authority, allowing the Fed to keep its supervisory power over the roughly 845 state-chartered banks but hand jurisdiction over most holding companies to other regulators.

Tester "is working with others on an alternative amendment to maintain the Fed's oversight of state-chartered member banks without preserving the Fed's current oversight of all bank holding companies," a spokeswoman for Tester said Wednesday.

Under the current Dodd bill, the Fed would retain oversight of holding companies with assets of more than $50 billion, but lose the rest of its banking supervisory authority. It was not immediately clear which amendment to change that provision had more support, but bankers remain optimistic about Hutchison's measure, which has 11 co-sponsors, including Democrats Patty Murray of Washington and Sen. Ben Nelson of Nebraska. "Was the Fed's supervision of these holding companies a problem in the first place? Our answer would be no," said Steve Verdier, a senior vice president at the Independent Community Bankers of America.

John Ryan, the executive vice president of the Conference of State Bank Supervisors, said that splitting up holding company supervision among three regulators would open up the Bank Holding Company Act to multiple interpretations, a result that could reshape the banking industry.

Hutchison continued to press for her amendment Wednesday, as did the presidents of the Federal Reserve banks.

"I have heard from the president of the Federal Reserve Bank in Dallas, Richard Fisher, as well as presidents of Federal Reserve banks of Kansas City, Minneapolis, Philadelphia and Richmond, all of whom are in town today and all agree stripping the Fed of its supervisory authority will drastically reduce the Fed's ability to achieve its objective of maintaining sound monetary policy for our country," Hutchison said.

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