US Congressional leaders (mostly Democrats from the Senate and the House of Representatives) are working towards completing a new financial regulatory set up for the US that will see one big winner, the US Federal Reserve.

The Fed's comeback from being one of the whipping boys for the credit crunch and the recession among the populists in Congress and many Americans is quite astonishing.

It was only a few months ago that conservative Republicans were on the verge of making the Fed more political by insisting that its oversight be tightened, that the head of the powerful New York Fed would be a political appointee and that some of the central bank's existing powers to regulate the financial system be watered down.

Those efforts have gone and the Fed now stands to be even more powerful, gaining a division to oversee consumer protection in the financial system, while maintaining control over monetary policy.

For us in Australia and people in other countries, an independent fed is important, especially one free from the craziness and the self interest of the American political system.

So the new US legislation will see the Fed with a consumer protection body entitled either the Bureau of Consumer Financial Protection in the Fed, funded by the Fed, or the US Consumer Protection Agency and funded by annual congressional appropriations (but still run as part of the Fed).

This is a very significant change from the original House of Reps move to have the consumer group independent and away from the Fed.

Reuters reported earlier this week that the Fed is "poised to emerge from an overhaul of financial regulations with a broader role in policing system-wide risk and most of its jealously guarded independence intact."

And that's the other big story out of the emerging legislation that will make life tougher and more expensive for American banks and financial group, most of whom were supported by the Fed, or the US Treasury in the dark days of late 2008 and early 2009.

And this is important to countries like Australia and others, because it means the world's most important central bank (and the one that saved the global economy during the crunch and recession in late 2008 and early 2009), will continue to have the power to regulate the US economy and financial system.

This system could be similar to the proposed changes in the UK where the Financial Services Authority is going to disappear with the Bank of England getting most of the powers, especially prudential controls and consumer protection through separate divisions (to be formed out of the remains of the FSA).

In Australia we have a more structured system: the RBA looks after the economy via monetary policy, the payments system, financial stability and works with APRA on prudential controls and stability; and works with ASIC (on consumer protection) and with the Federal Government through the Federal Treasury.

In a sort of echo of the Australian system (where the four main regulators are grouped into an oversight council), the US Senate wants to establish an inter-agency Financial Stability Oversight Council chaired by the Treasury secretary to watch for dangers that could damage the financial system, while giving the Fed some powers to take action.

Reuters explained that the House proposal though creates a similar council, but gives the Fed a much larger role in executing policy by setting limits for large, interconnected firms that could threaten economic stability.

The Senate bill gives the Fed formal responsibility for monitoring and defusing risks to U.S. financial stability.

The House bill allows the Fed to limit credit exposures at financial firms, block acquisitions, restrict pay and shut down undercapitalized firms.

The Senate bill puts the Fed in charge of supervising all financial firms, not just banks, with assets greater than $US50 billion that could destabilize the financial system if they collapsed.

Very quietly this week a deal was done that has yet to be fully explained that will give the Fed the power to wind down failed firms.

The House of Representatives proposed a systemic risk council that would impose stricter standards for systemically important financial firms.

And, in a highly important move, the meeting of the Senators and House of Reps members to resolve the bill has removed a proposal that would have allowed reviews of Fed monetary policy decisions by the Government Accountability Office, (which is an independent congressional investigative agency).

That was a policy driven by conservative Republicans for the most part, but also had some support from left wing Democrat members.

Judging by the comments from Fed chairman, Ben Bernanke and other members of the central bank's various member banks that was one proposal that was strongly opposed.

Now, like Australia, monetary policy will be independently run in the US.

Both houses have agreed though to audit the Fed's emergency lending facilities launched during the financial crisis and to any similar emergency lending facilities the Fed opens in the future.

The results of these investigations will only be made public a year after the facility closes.

Audits will be carried out on the Fed's discount window and open markets transactions, (its day to day management of liquidity in the system and funding of banks) and publish reports of these investigations, two years later.

The emerging legislation does stop prevent the the Fed lending to individual firms as it did with Bear Stearns and insurer, AIG and exceptional lending to broad facilities such as ones set up during the crisis to help the commercial paper market and money market funds keep going.

That is probably the toughest change for the central bank because that lending proved to be vital in preventing the US financial system shutting down completely in 2008 and into 2009.