Private sector gains in tax return battle.

WASHINGTON -- Private-sector advocates gained a powerful ally this week - House Banking Committee Chairman Henry B. Gonzalez - in their fight to keep the Federal Reserve from bidding on a contract to convert corporate tax payments to an electronic format.

The Texas Democrat lined up with the National Automated Clearing House Association and some big-bank interests in arguing that the Fed would be an unfair competitor.

Interdependence at Issue

"My primary concern ... is that the Federal Reserve and the Treasury are so interdependent that it is impossible for them to have the same arm's-length relationship that would exist with any other bidder," Rep. Gonzalez said.

"Dual oversight is impossible when the Treasury and Fed are inseparable and mutually dependent," he added in a letter Monday to Treasury Secretary Lloyd Bentsen.

A spokesman for the clearing house association also said the central bank has an unfair advantage over banks and other private-sector companies because of its relationship to Treasury.

"The whole process is already tainted because the Fed was in meetings with Treasury to refine the requirements" of the request for proposal, said William B. Nelson, the association's executive vice president.

Although not bidding on the project itself, the association has filed a protest with the Fed on behalf of several members who Mr. Nelson said prefer not to be identified. Since the Fed regulates bank holding companies and state-chartered banks that are members of the Federal Reserve System, many banks are reluctant to criticize the agency.

Mr. Nelson also said banks are concerned about the prospect of losing another level of contact with their corporate customers.

"If the Fed is not only providing the automated clearing house service, but maintaining direct contact with our customers, it could be the first step toward eliminating any role for banks in dealing with corporate customers," he said.

Backing Mr. Nelson was Sen. Connie Mack, a Florida Republican who sits on the Senate Banking Committee. Sen. Mack said a successful bid by the Fed would represent "a significant increase in the role of the Federal Reserve in the nation's payment system."

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