June 10, 2010 / 6:05 PM / 8 years ago

Factbox: What U.S. financial overhaul means for the Fed

WASHINGTON (Reuters) - Lawmakers from the U.S. House of Representatives and Senate kick off formal negotiations on Thursday in an effort to hammer out a compromise financial regulatory reform bill.

The House and Senate negotiators need to reconcile differences between two competing bills that mark the most sweeping overhaul of U.S. financial rules since the 1930s.

Following is a look at provisions in both the House and Senate bills that affect the Federal Reserve:

CONSUMER PROTECTION

The Senate bill sets up a consumer protection bureau as a part of the Fed that is funded by the Fed. The agency would have power to write consumer protection rules, but the Fed would have a role overseeing the agency. The House bill proposes a new, fully independent U.S. Consumer Financial Protection Agency to regulate mortgages, credit cards and other products.

SYSTEMIC RISK REGULATION

The Senate measure sets up an inter-agency Financial Stability Oversight Council chaired by the Treasury secretary to watch for dangers that could roil the wider financial system, giving the Fed some powers to take action.

The House creates a similar council, but gives the Fed a much larger role in executing policy by setting limits for large, interconnected firms that could threaten economic stability.

The Senate bill formally gives the Fed responsibility for monitoring and defusing risks to U.S. financial stability. The House bill allows the Fed to limit credit exposures at financial firms, block acquisitions, restrict pay and shut down undercapitalized firms.

SYSTEMICALLY IMPORTANT FIRMS

The Senate bill puts the Fed in charge of supervising all financial firms, not just banks, with assets greater than $50 billion that could rock the financial system if they collapsed. The House bill lets a systemic risk council impose stricter standards for systemically important financial firms.

AUDITS

The House bill allows reviews of Fed monetary policy decisions by the Government Accountability Office, a congressional investigative agency. The Senate bill calls for a one-time audit of the Fed’s emergency lending during the 2007-2009 crisis, but does not touch monetary policy. The Fed successfully fought off a Senate provision that would have exposed it to repeated audits of its emergency lending.

GOVERNANCE

The Senate bill makes the head of the New York Federal Reserve Bank a presidential appointee subject to Senate confirmation; currently, the head is chosen by the New York Fed’s board of directors.

It also establishes a Fed vice chairman for supervision.

Further, it prevents bankers supervised by the Fed from selecting or serving on the boards of directors of the 12 regional Fed banks around the country.

Currently, regional Fed boards are composed of a combination of bankers, individuals chosen by bankers, and individuals chosen by the Fed Board of Governors in Washington.

The Senate bill also calls for an audit of Fed system governance by the GAO, focusing on whether there are conflicts of interest in the way members of regional Fed bank boards are elected by banks.

The House bill makes no similar changes.

EMERGENCY POWERS

The Senate bill eliminates the Fed’s ability to lend to firms that do not already have access to its emergency lending facilities. During the financial crisis, the Fed provided funds to some non-bank Wall Street firms, citing a rarely used emergency provision of law. Usually, it lends only to banks.

The House bill puts a specific $4 trillion cap on Fed emergency lending and imposes controls by other agencies.

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