Fed officials applaud Senate vote on bank oversight

NASHVILLE, Tennessee (Reuters) - Two regional Federal Reserve Bank presidents on Wednesday praised a Senate vote that would keep the central bank in charge of overseeing thousands of smaller banks.

Fed policy makers, including Fed Chairman Ben Bernanke, had sharply criticized a proposal to strip the central bank of its oversight of smaller banks, saying they would lose an important finger on the pulse of the economy that helps them guide monetary policy.

St. Louis Federal Reserve President James Bullard called the development "good news" in a speech to bankers.

"The Fed should remain involved with community bank regulation so that it has a view of the entire financial landscape," Bullard said.

Kansas City Fed Bank President Thomas Hoenig said in a statement the vote would preserve the Fed's connection to smaller institutions around the country and not limit the focus of the U.S. central bank to big banks.

Many regional Fed banks would have been left supervising few banks or, in the case of Kansas City, no banks if Senate Banking Committee Chairman Christopher Dodd's plan to strip the Fed of the job of overseeing smaller banks had gone through. Under Dodd's plan, the Fed would have maintained oversight only of institutions with assets greater than $50 billion.

A Fed official declined to provide immediate comment on recent Senate votes impacting the Fed.

The Fed was sharply criticized in Congress for regulatory lapses that contributed to the 2007-2009 financial crisis. The Senate, however, in the past two days has approved legislation that softened efforts to strip oversight power from the Fed and require more disclosure of recipients of emergency Fed lending.

On Tuesday the Senate unanimously voted to subject the details of the Fed's emergency lending during the crisis to a one-time Congressional audit. The Fed pumped hundreds of billions of dollars into financial markets to stabilize the banking sector and economies worldwide. An earlier proposal would have opened the Fed to repeated audits.

The Senate is expected to approve the regulatory bill in coming weeks. The Senate version would have to be reconciled with language approved by the House of Representatives in December before it could be signed into law.

In remarks similar to ones he made last week in St. Louis, Bullard said the economy is showing continued signs of recovery and that monetary policy remains "extremely accommodative."

(Reporting by Mark Felsenthal; Editing by Leslie Adler)