WSJ: Congress Grows Fed Up Despite Central Bank's Push

From the article:

The Senate Banking Committee is considering legislation to strip the Fed of its role supervising big banks -- despite the Fed's insistence that doing so would cripple its ability to prevent and manage financial crises. The House Financial Services Committee voted Thursday to undo a 1978 law that shields Fed interest-rate decisions from congressional auditors -- overruling protests from Mr. Bernanke and predecessors Alan Greenspan and Paul Volcker, as well as the Obama administration and committee Chairman Barney Frank (D., Mass.).

Now here's what's interesting, the large financial institutions that led to the financial crisis are a DIRECT consequence of acts of CONGRESS.  Herewith extract of the relevant legislation - Descriptions taken from "Major Statutes Affecting Financial Institutions and Markets", Congressional Research Service. July 7, 2004.

• Federal Reserve Act of 1913 (P.L. 63-43, 38 STAT. 251, 12 USC 221).
  Established the Federal Reserve System as the central banking system of the U.S.
  
• Banking Act of 1933 (P.L. 73-66, 48 STAT. 162).
  Also known as the Glass-Steagall Act. Established the FDIC as a temporary agency. Separated commercial banking from investment banking, establishing them as separate lines of commerce.
  
• Banking Act of 1935 (P.L. 74-305, 49 STAT. 684).
  Established the FDIC as a permanent agency of the government.
  
• Bank Holding Company Act of 1956 (P.L. 84-511, 70 STAT. 133).
  Required Federal Reserve Board approval for the establishment of a bank holding company. Prohibited bank holding companies headquartered in one state from acquiring a bank in another state.
  
• International Banking Act of 1978 (P.L. 95-369, 92 STAT. 607).
  Available from Library of Congress Thomas Website. Under Legislation, select Public Laws, then select the number of the Congress and find the Law by the P.L. number.
  Brought foreign banks within the federal regulatory framework. Required deposit insurance for branches of foreign banks engaged in retail deposit taking in the U.S.
  
• Depository Institutions Deregulation and Monetary Control Act of 1980 (P.L. 96-221, 94 STAT. 132).
  Available from Library of Congress Thomas Website. Under Legislation, select Public Laws, then select the number of the Congress and find the Law by the P.L. number.
  Also known as DIDMCA. Established "NOW Accounts." Began the phase-out of interest rate ceilings on deposits. Established the Depository Institutions Deregulation Committee. Granted new powers to thrift institutions. Raised the deposit insurance ceiling to $100,000.
  
• Competitive Equality Banking Act of 1987 (P.L. 100-86, 101 STAT. 552).
  Available from Library of Congress Thomas Website. Under Legislation, select Public Laws, then select the number of the Congress and find the Law by the P.L. number.
  Also known as CEBA. Established new standards for expedited funds availability. Recapitalized the Federal Savings & Loan Insurance Company (FSLIC). Expanded FDIC authority for open bank assistance transactions, including bridge banks.
  
• Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (P.L. 103-328, 108 STAT. 2338).
  Available from Library of Congress Thomas Website. Under Legislation, select Public Laws, then select the number of the Congress and find the Law by the P.L. number.
  Permits adequately capitalized and managed bank holding companies to acquire banks in any state one year after enactment. Concentration limits apply and CRA evaluations by the Federal Reserve are required before acquisitions are approved. Beginning June 1, 1997, allows interstate mergers between adequately capitalized and managed banks, subject to concentration limits, state laws and CRA evaluations. Extends the statute of limitations to permit the FDIC and RTC to revive lawsuits that had expired under state statutes of limitations.
  
• Gramm-Leach-Bliley Act of 1999 (P.L. 106-102, 113 STAT 1338)
  (pdf version from Government Printing Office.)
  Repeals last vestiges of the Glass Steagall Act of 1933. Modifies portions of the Bank Holding Company Act to allow affiliations between banks and insurance underwriters. While preserving authority of states to regulate insurance, the act prohibits state actions that have the effect of preventing bank-affiliated firms from selling insurance on an equal basis with other insurance agents. Law creates a new financial holding company under section 4 of the BHCA, authorized to engage in: underwriting and selling insurance and securities, conducting both commercial and merchant banking, investing in and developing real estate and other "complimentary activities." There are limits on the kinds of non-financial activities these new entities may engage in. Allows national banks to underwrite municipal bonds.
  Restricts the disclosure of nonpublic customer information by financial institutions. All financial institutions must provide customers the opportunity to "opt-out" of the sharing of the customers' nonpublic information with unaffiliated third parties. The Act imposes criminal penalties on anyone who obtains customer information from a financial institution under false pretenses.
  Amends the Community Reinvestment Act to require that financial holding companies can not be formed before their insured depository institutions receive and maintain a satisfactory CRA rating. Also requires public disclosure of bank-community CRA-related agreements. Grants some regulatory relief to small institutions in the shape of reducing the frequency of their CRA examinations if they have received outstanding or satisfactory ratings. Prohibits affiliations and acquisitions between commercial firms and unitary thrift institutions.
  Makes significant changes in the operation of the Federal Home Loan Bank System, easing membership requirements and loosening restrictions on the use of FHLB funds.
  
  

The most relevant of these are Glass-Steagall, the bank holding act, Riegle-Neal, and Gramm-Leach-Bliley.  Under the first two acts large banks that operated in many states were NOT legal.  That is, it was generally not legal to have a bank that was "to big to fail."  The latter two acts made such banks legal.  Now, these are acts of Congress not the FED!  Perhaps rather than be angry at the FED congress ought to consider altering the laws that allow "to big to fail" banks to exist.

Just a bit of common sense.