WASHINGTON -- The chairman of a key congressional panel Monday scaled back important parts of the Obama administration's plan to dismantle financial institutions that are deemed ``too big to fail.''

Lawmakers won't give the independent Federal Reserve as many powers as President Barack Obama had proposed, according to a senior congressional staffer, sharing details with McClatchy News Service on the condition of anonymity because the emerging bill hasn't been made public. The measure, which tackles some of the thorniest issues of bank oversight, is intended to rewrite seven decades of financial regulation.

Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, worked over the weekend and throughout Monday to draft the legislation. It would provide the government with first-ever authority to shut down large globally interconnected financial institutions.

Under this authority, the Federal Deposit Insurance Corp. would oversee the dismantling of large financial firms much as it does now when it intervenes in commercial banks that are at risk of insolvency.

Decisions about which institutions are so large that they pose a systemwide risk and must be monitored would be made by a Council of Regulators, composed of leaders from the Fed, the Treasury Department, the FDIC and other bank-oversight agencies.

This marks a shift, since Obama wanted the Fed to take the lead role as a ``systemic risk regulator.'' However, lawmakers in the House of Representatives and the Senate are wary of that, not least because the Fed didn't foresee the gathering mortgage financial storm last year.

``A lot of members thought the Fed missed it,'' the congressional staffer said.

One unanswered question was whether the Council of Regulators would have a first among equals who calls the shots.

``By not having a decider, they're potentially creating an entity that won't be forceful enough,'' said Reinhart, now a scholar at the American Enterprise Institute, a center-right policy organization. ``A committee without a head is an invitation to create a discussion group.''

Under the emerging bill, Congress wouldn't set specific requirements, but would leave it to the Council of Regulators to determine how much capital banks should hold in reserve, or how much investing they can do with borrowed money. Insufficient reserves and too much borrowed money, called leverage, were primary contributors to the financial meltdown.

Many pieces of Obama's plan already have moved through Frank's committee, or are about to do so. These include curbs on executive compensation in the financial sector, the creation of a new Consumer Financial Protection Agency, first-ever rules for complex financial instruments called derivatives, first-ever registration for secretive hedge funds that invest on behalf of the mega-wealthy and new rules for credit-rating agencies that shirked their duty in the run-up to the financial crisis.

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