Message number 19908 in "AEN NEWS"
Date: 10-27-93  22:22
From: Al Thompson
To:   All
Subj: The Fed fights audit

MSGID: 1:231/110 2CC75D3B
AP 10/27 14:54 EDT

   WASHINGTON - Federal Reserve officials are resisting a
congressional attempt to audit billions of dollars of
monetary-policy and foreign-exchange transactions as an infringement
on their independence.

   "It would introduce the unmistakable potential for political
influence; every movement and nuance of policy would then have to be
examined in light of that potential," Federal Reserve Bank of New
York President William J. McDonough said Wednesday.

   Rep. Henry B. Gonzalez, D-Texas, chairman of the House Banking
Committee, is promoting legislation that would open the central bank
to greater public scrutiny, including more extensive auditing by the
General Accounting Office, Congress' watchdog agency.

   The GAO currently reviews the Fed's performance in many areas,
but is prohibited by law from examining its conduct of monetary
policy and its intervention in currency markets.

   Federal Reserve Board member Wayne D. Angell, who joined
McDonough at a hearing by Gonzalez' committee, said that limit on
GAO audits was important to ensuring the Fed's ability to set
interest rates free from short-term political pressure.

   "Even what appears to be a very limited audit of the efficiency
of monetary policy operations could in fact turn into pressure for a
change in monetary policy itself," he said.

   Gonzalez dismissed their objections. "The Fed just wants to keep
the curtains closed and keep any outside eyes from reviewing how
well -- or how bad -- its biggest policies are implemented," he
said.

   GAO head Charles A. Bowsher proposed safeguards he said would
allow his auditors to expand oversight without compromising Fed
independence. The GAO should be prohibited from disclosing the
identity of the foreign central banks the Fed deals with and its
access to certain kinds of confidential information should be
delayed, he said.

   "Removing our audit restrictions will not necessarily jeopardize
the Federal Reserve's independence," he said.

   Also, Bowsher said disclosure of information about some Fed
decisions should be delayed, such as in the case of the 1987 stock
market crash, to avoid disrupting financial markets.

   "Our role should be to make after-the-fact assessments of the
Federal Reserve's performance, both in general and in problem
situations," he said.

   Wednesday's hearing was the fourth and last in a series this
month spotlighting areas Gonzalez considers ripe for reform.

   He used his opening statement to complain about reports that
bankers regulated by the Fed took Federal Reserve Bank of New York
officials out to expensive restaurants.

   McDonough acknowledged officials had been guests at about two
dozen meals over the past year and a half. But he said the practice
was a good way for the Fed to gather information about market
conditions, which it needs to formulate monetary policy.

   Nevertheless, staff members were cautioned about accepting
frequent or lavish meals and now are required to report free meals,
McDonough said.

   Rep. Jim Leach of Iowa, the senior Republican on the committee,
called it "a very small potatoes issue."


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 * Origin: Gun Control=Criminals & Gestapo vs. the Unarmed. (1:231/110)

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