The Federal Reserve was to play a major role in the Obama Administration’s proposed regulatory overhaul of the financial system, but Congress may stand in the way. Many Senators have lost confidence in the Federal Reserve and are now moving a different route for financial regulatory reform.

A new piece of legislation taking shape in the Senate’s Banking Committee would give the Federal Reserve far less authority than the Obama administration had originally thought when it proposed the reforms that it had unveiled in June. Why the change? Senators from both sides of the aisle have lost confidence in the Fed in the wake of the worst financial crisis since the Great Depression, challenging every from the central bank’s lack of transparency to its ability to protect consumers.

Many Democratic lawmakers oppose giving the Fed responsibility for monitoring systemic risk in the economy as the Obama administration has proposed, favoring instead in vesting that authority to a group of regulators or to other agencies.

However, not all are sold on the financial regulatory overhaul. Many criticize the plans being developed as too constricting and overreaching, saying that some of the proposed changes would cause many financial institutions to fail, preventing individuals and small businesses from getting any form of credit.

Others in Congress hope to take financial reform in another direction, by reviewing the role that the Federal Reserve has all together. There are competing pieces of legislation in the House and the Senate that would provide for a full audit of the Federal Reserve (H.R. 1207 and S. 604) and another piece of legislation that would end the Federal Reserve all together. The Federal Reserve Board Abolition Act (H.R. 833) was introduced in February by Congressman Ron Paul (R-TX).

Paul’s movement to audit the Federal Reserve with H.R. 1207 has gained a lot of ground in the last few months that now has 284 co-sponsors with Bill Young (R-FL) and Donald Young (R-AK) recently adding their names to the list. The Senate’s “audit the Fed” legislation currently has 23 co-sponsors. H.R. 833 currently has no cosponsors, but Paul hopes that additional members of Congress will come on board after light is shined on the Federal Reserve’s opaque monetary practices.