WASHINGTON May 4 (Reuters) - A Republican senator has readied an amendment to financial reform legislation that would leave the Federal Reserve in charge of regulating thousands of small banks.
Proposed legislation crafted by Senate Banking Committee Chairman Christopher Dodd, which the full Senate is now debating, would put the Fed in charge of overseeing institutions with assets greater than $50 billion, but strip it of small bank supervision.
That new role would leave the U.S. central bank policing about 50 big financial firms but authority over more than 5,000 others would be handed off to other bank regulators. Dodd and others say the Fed's regulatory lapses failed to limit risky practices that triggered a damaging financial crisis and painful recession.
Senator Kay Bailey Hutchison's amendment would keep the Fed as supervisor of smaller banks. Co-sponsors of her amendment, which hasn't reached the Senate floor, include Minnesota Democratic Senator Amy Klobuchar and eight Republicans, a Hutchison aide said.
"If the Fed supervises only the largest firms, it will gear monetary policy toward these large financial institutions," said Hutchison, who is a member of the banking committee.
Other lawmakers have also backed keeping the Fed in charge of supervising community banks, as have various Fed policy makers.
Federal Reserve officials have argued that the U.S. central bank's supervision of small banks helps policy makers keep their finger on the pulse of the U.S. economy.
Top officials of the 11 regional Fed banks outside Washington and New York have been particularly vocal in pressing lawmakers to maintain their oversight of banks in their regions. (Reporting by Mark Felsenthal; Editing by Leslie Adler)