Greenspan Rejects Calls to Reform Fed : Policy: He says proposed measures to make board more accountable could lead to economic instability and recession.

Federal Reserve Board Chairman Alan Greenspan, in a spirited defense of central bank independence, bluntly rejected a congressional move to make the nation’s central bank more politically accountable. The Fed chief called such efforts assaults that could lead to economic instability and recession.

But supporters intent on reforming the nation’s most powerful economic institution let it be known they intend to push forward.

Greenspan squared off Wednesday with House Banking Committee Chairman Henry B. Gonzalez (D-Tex.), who is spearheading the most concerted effort in three decades to overhaul the Fed, which critics charge is undemocratic, secretive and dominated by white, male bankers.

Gonzalez’s bill proposes that all 12 voting members of the Federal Open Market Committee, which sets monetary policy, be named by the President and confirmed by the Senate.

Now only the seven Fed governors undergo that process. The 12 district presidents, five of whom sit on the FOMC on a rotating basis, are chosen by their bank boards. It would also force more timely public release of Fed policy actions, provide greater congressional oversight of the Fed’s budget and expand opportunities for women, minorities and non-bankers to serve as regional bank directors.

Greenspan rejected all the proposed changes, saying they are either not needed or, in the worst case, would subject the central bank to greater political pressures.

“Provisions that, in effect, increase political leverage on Federal Reserve decision making amount to assaults on the defenses that Congress has consciously put in place to ensure the appropriate degree of central bank independence,” Greenspan said. “Weaken those defenses and, I firmly believe, the economy is at risk.”

Greenspan said the current Fed structure, established by 1913 and 1935 laws, has stood the test of time in giving the country a central bank that could pursue anti-inflation policies that might cause unemployment to rise temporarily without fear of being influenced by political considerations.

Efforts to spur economic growth without regard to inflation, Greenspan said, could “lead to instability, recession and economic stagnation.”

Gonzalez and Rep. Lee H. Hamilton (D-Ind.), who is pushing his own overhaul bill, argued that they are putting forward modest changes to make the Fed more democratic.

“This is not radical reform, and there is no cause for the Federal Reserve to proceed as if barbarians are at the gate,” Gonzalez said.

He and Hamilton said it is unconscionable that the Fed regional bank presidents are allowed to vote on interest rate policies even though they are chosen by directors selected primarily by commercial banks.

Greenspan repeatedly said the current system is working well--with the possible exception of a lack of women and minorities in top positions. The Fed is stepping up its efforts to recruit women and minorities, he said.