The U.S. Federal Reserve is the only regulator that has the expertise to effectively supervise financial firms of all sizes, a senior central bank official said on Wednesday.

No other agency has, or could easily develop, the degree and nature of expertise that the Federal Reserve brings to the supervision of banking organizations of all sizes and the identification and analysis of systemic risks, Cleveland Federal Reserve Bank President Sandra Pianalto told a Levy Economics Institute conference in New York.

Pianalto's remarks come as U.S. Congress is moving closer to a decision on legislation that would tighten the regulatory screws on banks and capital markets, potentially changing the financial services industry for decades to come.

A Senate proposal would strip the Fed of its current powers to oversee banks with less than $50 billion in assets.

Pianalto argued that not only large firms perceived as too big to fail have the potential to pose a risk to the entire financial system if they get into trouble.

Other important factors that need to be considered are contagion, correlation, concentration, and context, Pianalto said.

She described these firms as too interconnected to fail, too many to let fail, too dominant to fail or too much attention to fail.

She said a more consolidated approach to supervision is needed to plug the gaps in regulatory oversight that came to light during the financial crisis.

I support legislation that would remove some of the constraints we currently face to obtain information from, and address unsafe and unsound practices in, the subsidiaries of bank holding companies, Pianalto said.

Without consolidated supervisory authority, oversight gaps will continue, making it difficult to identify cross-entity risks within a bank holding company and to take appropriate action to mitigate those risks, she said.