The Federal Reserve would win sweeping new powers over nonbank financial firms and keep much of its authority over banks, under revised legislation to be unveiled on Monday by the chief architect of financial reform in the Senate.

In a remarkable recovery by the U.S. central bank after a steep drop in its political popularity, Senate Banking Committee Chairman Christopher Dodd was poised to release a bill that leans heavily on the Fed, sources said on Sunday.

Not only would a new government watchdog for financial consumers be housed within the Fed, but it would also retain much of its present authority over large bank holding companies and gain new authority over selected nonbank financial firms.

Dodd's bill would give the Fed authority to supervise bank holding companies with more than $50 billion in assets, down from an earlier threshold of $100 billion, sources said.

The bill may 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, a source said. An earlier proposal had called for transferring responsibility for supervising such banks to the Federal Deposit Insurance Corp.

That would put hundred of banks under the Fed's purview, including such giants as Bank of America and Citigroup, as well as branches of foreign banks, a source said.

The bill from Dodd, a Democrat, would also empower the central bank to supervise nonbank firms designated as systemically important by a council of regulators.

Before it became the poster-child for bailouts, former insurance giant American International Group (AIG) would have fit into that category, for instance.

Revamping how the financial system is supervised is one of the Obama administration's top priorities. Since the worst financial crisis in decades tipped the U.S. economy into a deep recession and sent shock waves across world markets, the United States and the European Union have been pursuing reforms.

The White House unveiled a sweeping package of proposals in mid-2009. The House of Representatives approved most of them in December in a massive piece of legislation that passed without a single Republican vote of support.

But with lobbyists for banks and Wall Street working hard to block or weaken reforms, the Senate has yet to act. With congressional elections approaching in November, Dodd is under intense pressure to push a bill through his committee and onto the Senate floor before political campaigns take center stage.


Dodd sharply criticized the Fed last year for regulatory failures. In an early draft of his own reform plan, he proposed stripping the central bank of bank supervision and consumer protection duties, leaving it focused almost exclusively on its role as a monetary policy center.

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.

At the same time that he is proposing new powers for the Fed, Dodd is also considering changes to how regional Federal Reserve bank directors are chosen, a source said.

He also plans to put President Barack Obama's proposed financial consumer watchdog in the Fed. To win support among Democrats for the idea, he will give the watchdog considerable power and autonomy, sources said.

Dodd wants the banking committee to work on his new bill before April, but Republicans have already told him they want sufficient time to consider the legislation.

Dodd's bill will attempt to put an end to a market perception that some financial firms are too big to fail after the government used billions of dollars in taxpayer funds to rescue firms such as AIG.

There is agreement that a fund of about $50 billion should be created to help pay for the cost of unwinding large troubled firms.

Dodd is also expected to give market regulators the authority to regulate the $450 trillion over-the-counter derivatives market with some narrow exemptions.