WASHINGTON -- House Banking Committee Chairman Henry B. Gonzalez turned up the heat on the Federal Reserve Thursday, portraying the central bank as an insular agency that wields enormous power with little oversight or accountability.
In the first of a series of hearings on the Fed, the Texas Democrat focused attention on the 12 district bank presidents, who hold five of the 12 seats on the policymaking Federal Open Market Committee.
The Reserve Bank presidents, he said, are essentially appointed by the commercial bankers who select a majority of each bank's directors.
An 'Exclusive Club'
"There has been only one woman and no minority bank presidents in the Federal Reserve System's 80-year history," said Rep. Gonzalez. "I want to take the 'bankers and their friends' sign off the door to this exclusive club and open it up to all competent Americans."
The banking committee chairman has introduced legislation that would open the Fed up to more disclosure and subject the district bank presidents to presidential appointment and Senate confirmation.
Although the Fed is said to be nervous about the bill, most observers doubt that Congress will approve legislation in the near future. Most recently, President Clinton appeared to dampen prospects for legislation by telling Rep. Gonzalez he would not support change at this time.
Seen as Having Too Much Sway
The panel of lawmakers who appeared before the banking committee largely shared Rep. Gonzalez's views. Sen. Paul Sarbanes, D-Md., and Sen. Byron Dorgan, D-S.D., who have sponsored bills of their own to overhaul the Fed, both said the outsized influence of the banking industry on the Fed is improper.
The money stock is the banking industry's, principal resource, he said, and "by controlling the the creation of this money, through the Fed's open market committee, they get to manipulate the inventory to their own advantage," said Sen. Dorgan.
"Stripped of the pomp and majesty, this is a pretty raw deal for our farmers and small businesses and for the American people generally," he added.
Rep. Stephen L. Neal, D-N.C., defended the Fed, arguing that the central bank's effort to promote price stability would have a lasting, beneficial effect on the economy.
But Sen. Sarbanes disagreed sharply, telling Rep. Neal that, "an economic policy that gives you price stability, but plunges the country into a recession is not an adequate policy."
"The question is, on what basis of legitimacy are people going to make these decisions," he added.
Rep. Kweisi Mfume, D-Md., chairman of the Congressional Black Caucus, said the agency should be made subject to the Civil Rights Act of 1964 and said a commission should be named to examine the effect of Fed regulations on low- and moderate-income families.
Rep. Gonzalez suggested the Fed is buying off critics in the academic world by spending more than $ 1 00,000 on consulting fees, even though it employs more than 700 professionals of its own.
