A Senate committee has proposed the widest-ranging reforms to US banking regulation since the financial crisis, including stripping the Federal Reserve of many of its powers.

The Senate Banking Committee unveiled a Bill that would remove responsibility for bank supervision from the central bank and the Federal Deposit Insurance Corporation (FDIC) and give it to a new regulator, the Financial Institutions Regulatory Administration. The Fed oversees national and some state banks and the FDIC supervises smaller local banks.

In announcing the Bill, Senator Chris Dodd, the committee chairman, called the Fed an “abysmal failure” as a bank regulator. He said that the Fed should return its focus to monetary policy and last-resort lending.

Under the committee’s proposal, a new board led by the Fed would monitor problems caused by financial groups becoming too big to fail. The Bill goes much further than President Obama dared when he announced proposals for regulatory reform in June.

The White House initially had been expected to remove power from existing regulators, but fierce lobbying from the supervisors ended up expanding the Fed’s power, disappointing those who blame the supervisors for failing to prevent the credit crunch.

Ben Bernanke, the Fed Chairman, has continued to fight attempts to carve up the central bank’s empire. Last month he insisted that the Fed’s ability to create effective monetary policy relied heavily on its role as a bank regulator.

The House Financial Services Committee is also working on a regulatory reform Bill, which is expected to come up for a vote next month. The House Bill is less severe than that of the Senate. Both houses will discuss their proposals before the Bills go to a conference committee comprising members of both houses to be crafted into a single piece of legislation, which must then pass through both houses again.

The legislation is not expected to be finalised until next spring.

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