A bipartisan group of lawmakers urged Federal Reserve Chairman Alan Greenspan on Tuesday to remove the central bank from the check processing business.
"Let's ... bring banking services into the 21st century with a modern payment system in which private enterprise provides competition and innovation to promote a full range of choices for the nation's consumers," said Rep. Carolyn B. Maloney, D-N.Y.
Private clearing would be more efficient and less costly, she said. Her request was supported by Rep. Jack Metcalf, R-Wash. "I'm worried about these check courier fees," he said.
The Fed is under fire for paying above-market rates to move checks around the country and then passing these fees onto banks. Fed Vice Chairman Alice Rivlin is leading a review of the central bank's role in the retail payment system.
Check clearing was one of several banking issues that lawmakers raised as Mr. Greenspan presented his semiannual report to Congress on the country's economy.
Rep. Michael N. Castle, chairman of House Banking's monetary policy subcommittee, vowed to hold hearings in August on the Fed's role in the payments system and its oversight of electronic commerce.
"There are dramatic changes in store," Rep. Castle said. "In these future hearings we can explore the issue."
Mr. Greenspan declined to respond to any of the banking comments, focusing his remarks on the state of the economy. In his testimony, however, the Fed chief said lenders are confident about being repaid.
"Credit spreads at depository institutions and in the open market have remained extremely narrow by historical standards, suggesting a high degree of confidence among lenders regarding the prospects for credit repayment," Mr. Greenspan told lawmakers.
The economy continues on an "exceptional" path of high growth and low inflation, he said, making only muted comments about the surge in stock prices in recent months.
Unlike his now-famous Dec. 5 speech about possible "irrational exuberance" in financial markets, Mr. Greenspan said only that the Fed will be "closely examining financial market prices and flows in the context of a broad range of economic and price indicators for evidence that the sustainability of the economic expansion may be in jeopardy."
That is not a current worry, Mr. Greenspan said. "The recent performance of the economy, characterized by strong growth and low inflation, has been exceptional-and better than most anticipated."
Growth is likely to slow to 2% to 2.5% next year, off from this year's 3% to 3.25% inflation-adjusted pace.
Mr. Greenspan said the economy's performance could be "part of a once- or twice-in-a-century phenomenon that will carry productivity trends nationally and globally to a new higher track."
However, the good times won't last unless the Fed remains vigilant, Mr. Greenspan warned. "I have no doubt that the current state of policy- characterized by a nominal federal funds rate around 5.5%-will need to be changed at some point to foster sustainable growth and low inflation," he said.
Still, that language suggests Mr. Greenspan is signaling that he doesn't see any immediate need to increase the overnight bank lending rate.
The Fed hasn't changed interest rates since March 25, when central bankers voted to raise the federal funds rate on overnight bank loans by a quarter point to 5.5%. The Fed's rate-setting Open Market Committee meets again Aug. 19. Indeed, Mr. Greenspan said "the current lack of material shortages and bottlenecks, despite the high level and recent robust expansion of demand, is striking."