Mar 08, 2010

"The worst of the banking crisis may be long over, but the political contest over the Federal Reserve is entering a crucial phase in which its personality and role will almost certainly be redefined.

The Fed has tried to fend off very public efforts in Congress to strip it of responsibility for regulating America's banks, but a less-visible battle has been playing out inside the central bank. The Fed has undertaken a wrenching reorganization of its army of 3,000 bank supervisors, which has centralized more power in Washington and sometimes pitted officials at the 12 regional Fed banks against those in the capital.

Fissures at the central bank boiled over last year in a meeting in the boardroom of a Fed branch office in Memphis. The presidents of the regional banks, which dot the country from Boston to San Francisco, complained to Fed Vice Chairman Donald Kohn that the Fed's Washington bank-supervision group was adrift and not providing the district banks needed guidance on how to navigate a worsening banking crisis. Soon, though, Washington was more involved than ever. In one example: The Atlanta Fed was subjected to an especially thorough critical review of its performance as a regulator because of the large number of bank failures in the Southeast."

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