Congress should consolidate the agencies regulating banks but leave the Federal Reserve out of the plan, the head of the General Accounting Office recommended last week.
If followed, the advice of Comptroller General Charles A. Bowsher would remove a major obstacle standing in the way of simplifying the bureaucracy that regulates the nation's 13,000 commercial banks and savings institutions.
The Clinton administration wants to create a new Federal Banking Commission to take over the regulatory duties of four agencies: the Fed, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corp.
But Fed officials are waging a vigorous fight to preserve their jurisdiction and so far have found considerable support among members of the Senate Banking Committee.
The Fed argues that the knowledge and clout it has as a hands-on bank regulator are crucial to carrying out its chief function as overseer of monetary policy and interest rates.
"The Federal Reserve's concerns warrant serious consideration," Bowsher told the Senate Banking Committee.
"Until this question is answered, it could be risky to eliminate the Federal Reserve's direct involvement in bank supervision," he said.
He strongly urged lawmakers to combine the thrift office, the comptroller's office and the FDIC.
The Fed has offered its own consolidation plan, in which it would take over the supervisory duties of the FDIC, leaving the thrift office and comptroller's office to the new commission.
Banking analyst Karen Shaw of the Institute for Strategy Development said Bowsher's proposal _ if accepted by the administration _ may provide a way for Congress to resolve the contentious turf fight.
"It's a constructive proposal given the politicization of this debate," she said. As for the administration, she said, "They have a choice: half a loaf or none."
Bowsher said recent work by the GAO, the congressional watchdog agency, showed the current regulatory scheme means bankers get inconsistent and sometimes conflicting advice from the government.