Fed’s Comeback ‘Punch’ Wins Senate Fights on Rates, Oversight

By Scott Lanman and Craig Torres

The Federal Reserve beat back two of the biggest threats in decades to its political independence and bank-oversight powers, surmounting congressional anger over its role in the financial crisis. U.S. senators voted 90-9 yesterday to void a provision in regulatory-overhaul legislation that would have stripped the Fed of oversight of 5,000 banks with less than $50 billion in assets. A day earlier, senators rejected a measure to allow continuous congressional audits of Fed policies. The wins mark a shift in favor of Fed Chairman Ben S. Bernanke, who in January won a second term by a 70-30 vote in the chamber, the most opposition in history. Fed officials and banks lobbied lawmakers over concerns about potential political interference with monetary policy and a diminished role for the regional Fed banks, which directly supervise firms and help set interest rates. “They pack a hell of a punch, and they know it,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc., a Washington consulting firm specializing in financial regulation, whose clients include the biggest U.S. banks. “The Fed’s institutional gravitas is profound, including the depth of staff it has. It is unique among the financial regulators.”

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