WASHINGTON -- Federal Reserve Board Chairman Alan Greenspan defended the central bank's approval of two applications by Barnett Banks Inc. to expand despite a pending Department of Justice fair-lending probe.

Mr. Greenspan, in a Nov. 1 letter that was released Wednesday, told Rep. Henry B. Gonzalez, DTex., that the central bank has a legal obligation to weigh the evidence of discrimination in each case before voting.

In the Barnett cases, the evidence showed that the Floridabased institution had not discriminated, Mr. Greenspan wrote. Because the board had no evidence of discrimination, it was legally obliged to approve the applications, he added.

Mr. Greenspan was responding to an Oct. 19 letter from Rep. Gonzalez, chairman of the House Banking Committee. That letter questioned the Fed's commitment to enforcing the Fair Housing Act and Equal Credit Opportunity Act.

Mr. Greenspan said the board would have considered any evidence that the Department of Justice has collected against Barnett, if the department had turned it over.

But he said the agency had refused to release its evidence, forcing the central bank to act without it. Lawyers said ,at the time that the Justice Department would damage its chances for success in court by releasing evidence to the Fed.

Mr. Greenspan also wrote that no rift exists between the Fed and other regulators or the Justice Department.

Instead, he said, what observers are seeing is, "in fact, only the working in an individual case of two agencies with different statutory responsibilities."

But that's not how Richard Ritter, a former federal prosecutor who consults on fair-lending issues for the Department of Housing and Urban Development, interpreted the letter.

"To me, it means that, unless there is blood on the Fed's floor, they are not going to accept statements from other agencies," Mr. Ritter said. "It further illustrates the Fed's independence in this area."

Mr. Greenspan also wrote that the board has not changed its policy since the Shawmut case in 1993. The Fed will hold up applications in cases, like Shawmut's, where the central bank refers the matter to the Justice Department, he said..

In those cases, the board already has determined that a bank broke the law, Mr. Greenspan wrote. But in cases where it doesn't make the referral, the governors must review the evidence and make an independent decision, he wrote.

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