Senate financial reform bill to boost Fed

The bill will also preserve the Fed's power over state-chartered banks with less than $50 billion in assets that are already in the Federal Reserve system, sources said.

An earlier proposal had called for transferring responsibility for supervising such banks to the FDIC, which already oversees state-chartered banks outside the Fed system.

If the state-chartered banks stay under the Fed's umbrella, it would have power over hundreds of banks large and small, as well as branches of foreign banks, sources said.

FED TO OVERSEE SOME NONBANK FIRMS -SOURCES

In addition, the bill would empower the Fed to supervise non-bank firms designated as "systemically important" by the council of regulators. Before its bailout, former insurance giant American International Group (AIG) would likely have fit into that category, for instance.

Dodd sharply criticized the Fed last year, calling its track record as a bank supervisor and consumer protection regulator an "abysmal failure." In an early draft of his own reform plan, he proposed stripping the Fed of bank supervision and consumer protection duties, leaving it focussed almost exclusively on its role as a monetary policy manager.

But Fed Chairman Ben Bernanke, other Fed insiders and some banking interests have pushed back hard in recent months to shield the institution, and it appears to have worked.

Dodd plans to put Obama's proposed financial consumer watchdog inside the Fed, rather than make it an independent agency. To win support among Democrats for this, he will give the watchdog considerable power and autonomy, sources said.

Dodd said: "I want a very authoritative, very independent consumer division, agency, bureau, however that emerges."

With a clear majority in the committee, Dodd probably can push his bill through, likely before the end of March. A bipartisan compromise might even be reached. In either case, committee approval would send the measure to the full Senate.