WASHINGTON - Members of Congress seeking to reform the Federal Reserve and make the central bank more accountable to the public opened their drive for legislation yesterday at a hearing of the House Banking Committee.

Leading critics from the Senate and House said the time is ripe for reform and dismissed worries expressed by President Bill Clinton and others that legislation would unsettle financial markets. Instead, they stressed that their proposals are modest and would not interfere with the Fed's ability to conduct monetary policy.

"If you talk about fixing a door jamb at the Fed they accuse you of being part of a demolition wrecking crew," said Sen. Byron Dorgan, D-N.D. "The last of the power dinosaurs that exist in this town is the Fed."

Committee Chairman Henry Gonzalez, D-Tex., said, "There is nothing to fear. I am not seeking to politicize the central bank or take away its independence. I am not calling for policies that would cause inflation or deflation."

Gonzalez introduced legislation early in the year that would require the 12 Federal Reserve Bank presidents to be nominated by the President and confirmed by the Senate.

Five Fed bank presidents now sit on the Federal Open Market Committee to help implement monetary policy on a rotating basis, except the president of the New York Fed, who has a permanent place on the panel. The rest of the FOMC is made up of seven members of the Fed's Board of Governors, all appointed by the President.

Gonzalez also believes that Fed operating procedures are too secretive and wants to have full minutes of FOMC meetings made public within a week. Currently, the Fed releases a sanitized version of the minutes with a lag of about six weeks, leaving it up to Wall Street analysts to guess the direction of monetary policy unless there are leaks to the media.

Other provisions in the Gonzalez legislation would trim the power of the nine-member boards of directors at the Fed district banks by allowing them to appoint only three members instead of six. The Board of Governors would continue to appoint the rest. In addition, Gonzalez wants to expand federal audit procedures of the central bank's monetary policy and foreign exchange operations.

Finally, there is language in the bill to make the Federal Reserve system subject to civil rights laws in order to expand hiring of women and minorities, especially in top staff positions. Rep. Kweisi Mfume, D-Md., released partial results of a study undertaken by Gonzalez showing that white males continue to hold most of the high-paying jobs.

"In the current system we have people making very important public decisions who have no claim to public legitimacy and no accountability," said Sen. Paul Sarbanes, D-Md., a member of the Senate Banking Committee.

Sarbanes has introduced a bill in the Senate that would remove the district bank presidents from the FOMC and leave monetary policy in the hands of the Board of Governors. A similar measure has been introduced in the House by Rep. Lee Hamilton, D-Ind.

The current system favors "people who are in the banking business" and gives them "a large chunk of government policy" that puts less emphasis on unemployment and other social issues, said Rep. Barney Frank, D-Mass.

"I don't understand why the American people should be trusted to have influence over military policy and unemployment and trade and a whole lot of other things, but monetary policy is somehow so delicate that they got to keep their grubby hands off it," Frank said.

William Greider, a financial reporter and author of Secrets of the Temple, said "it's really fatuous" to argue that the Fed is not a political institution, but that it also is not an institution of "dark plots" that takes its orders from the White House.

Greider said full disclosure of FOMC minutes would make the Fed a more effective institution by raising the level of economic debate in the United States and forcing Fed officials to speak "a little more plainly" about their economic goals.

But not everyone was anxious to support legislation. Rep. Stephen Neal, D-N.C., said there is no need to try and harmonize relations between the Fed and Congress. "The Fed has been able to peruse an independent policy, bring down inflation, bring down rates," he said, "even in the face of this very devastating fiscal policy."

Rep. James Leach, R-Iowa, the ranking minority member of the Banking Committee, said he is not convinced of the need "to establish a new institutional arrangement."

"It is impressive how stable the American currency is, especially given the loose fiscal policy conducted by Congress," said Leach. "The danger is very real" that legislation "could lead to a butchering of monetary policy."

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