After heavy criticism of its handling of the financial crisis, the Federal Reserve on Wednesday appeared likely to escape the most aggressive congressional scrutiny of its interest rate deliberations.
Lawmakers finalizing a sweeping overhaul of financial regulations have indicated they may back away from a measure that would subject the U.S. central bank's monetary policy to scrutiny. They could also abandon a plan to make one of its top officials a political appointee.
Fed officials had opposed both measures as intrusions on the central bank's political independence -- something that has been a hallmark of the Fed's operations in recent times.
The Fed, on the defensive early in the reform process, has already scored several victories in recent weeks and looks set to emerge as the most powerful financial regulator when reforms are complete.
President Barack Obama has made a rewrite of U.S. financial rules a top priority in the hopes of avoiding a repeat of the 2007-2009 financial meltdown.
Democrats in charge of negotiating a final Wall Street reform bill say there are relatively few differences they need to resolve between the competing bills passed by the House of Representatives and the Senate. They aim to finish by June 24 so Obama can sign a final package into law by early July.
On their second full day of work, negotiators directed regulators to find a way to reduce the conflicts of interest that critics say led credit-rating agencies like Moody's Corp and Standard & Poor's to issue the highest ratings on toxic securities ahead of the financial crisis.
The Securities and Exchange Commission would set up a government clearinghouse to prevent agencies from soliciting business from the credit issuers whose products they are supposed to impartially assess unless the agency determines a better way to resolve the conflict of interest.
The agreement, which concludes negotiations started on Tuesday, is a big win for credit rating agencies, which otherwise would have definitely seen the clearinghouse take effect.
The negotiating committee also considered measures that would strengthen the SEC's powers and toughen the client-care standard for brokers who offer financial advice.
House negotiators agreed to give shareholders the ability to sue banks and other third parties that are not directly involved in securities fraud cases. The senators on the committee had yet to weigh in.
House Democrats also said they will press their Senate counterparts to accept a $150 billion fund to pay for liquidating financial firms that get into trouble and empower regulators to break up unstable large firms.
PARTIAL REPRIEVE FOR FED
The Fed has admitted it was too complacent about oversight before the financial crisis, which prompted the worst recession in generations.
While Fed officials have endured tongue-lashings from lawmakers who say it is too close to the banks it regulates, much of that anger may have dissipated since Fed Chairman Ben Bernanke survived a tense Senate confirmation vote in January.
House Democrats on the panel aim to drop a provision in their version of the bill that would have opened the Fed's interest rate decisions to congressional audits.
But lawmakers looked set to agree on a Senate proposal for a one-time look at the Fed's emergency lending during the crisis.
House Democrats want to broaden that audit to cover regular discount window lending and open market transactions and force the Fed to disclose details on those programs on a continuing basis, although with a three-year lag.
They also aim to defeat an aspect of the Senate bill that would allow the U.S. president to name the head of the New York Fed. Currently, the president of the New York Fed -- the only one of the 12 regional Fed banks with a permanent voting seat on the central bank's policy-setting committee -- is named by the bank's board, which includes private bankers.
The committee next week is scheduled to tackle disputes about how to limit banks' risky trading activities, how to protect consumers and whether to limit fees on debit-card transactions.
Banks are pressing to soften a proposal that would limit their ability to trade on their own accounts and invest in private equity and hedge funds. But their prospects appear to be dimming.
They also look likely to face limits on their lucrative swaps-trading operations as Democrats near consensus on a proposal that would require banks to spin off their operations to a separately capitalized affiliate.
The overall bill is likely to crimp financial firms' profits. Those whose profits appear most at risk are Goldman Sachs Group, Morgan Stanley, J.P. Morgan Chase and Bank of America, according to a Citigroup analysis.
(Additional reporting by Kim Dixon and Rachelle Younglai; Editing by Kenneth Barry)