A director of the New York Federal Reserve Bank voted on issues affecting the now-defunct Franklin National Bank when his law firm represented one of the banks bidding to acquire Franklin's assets, minutes of a Fed meeting released by Rep. Henry S. Reuse (D-Wis.) show.
The minutes show Poswell L. Gilpatric, a partner in the New York law firm of Cravath, Swaine and Moore, disclosed to fellow directors of the New York Federal Reserve Bank that his firm represented Chemical Bank of New York, one of the prospective bidders.
"Mr. Gilpatric said that he personally had not participated in the rendering by the firm of any legal services to Chemical Bank and that, after consideration, he had concluded that under the circumstances the relationship . . . was not grounds whereby he should disqualify himself . . ." the Oct. 7, 1974, minustes say.
The New York Federal Reserve Bank is one of 12 institutions that assist the Federal Reserve Board in setting monetary policy by regulating the nation's money supply and examining the operations of banks that are members of the Fed.
Gilpatric said yesterday, "Having made a full disclosure to my fellow directors and since my vote was not determinative, it didn't bother my conscience at all or those of my fellow directors. Chemical Bank was one of a number of bidders and did not succeed I felt I was leaning over backward to disclose that my firm represented the Chemical Bank."
In a statement prepared for delivery on the floor of the House yesterday Reuss, the chairman of the House Banking Committee, cited Gilpatric's action and other activities revealed in minutes of Fed bank meetings, to demonstrate what he said was the Fed's "pattern of disdain for public accountability."
Referring to the minutes he obtained, Reuss said, "Even with 904 decisions made by the Fed, presumably dealing with 'sensitive' matters such as personnel discussions, delicate transactions of foreign central banks, or items dealing with bank security, these minutes raise the most serious questions about the use of power and money by a public agency."
The minutes quoted by Reuss show that directors of several Federal Reserve banks were encouraged at director meeting's to let members of Congress know their views opposing legislation that would require audits of the Fed by the General Accounting, Office, the audit arm of Congress or otherwise open Fed activities to public scrutiny.
The Washington Post reported in December, that the first such audit - although not mandated by letislation had criticised the Fed's regulation of bank holding companies, saying the Fed generally did not detect problems in these companies before they weakened the banks which they were affiliated.
Reuss quoted the minutes of a 1972 Philadelphia Federal Reserve Bank meeting as saying an official of the bank has been in touch with bankers and New Jersey state legislators to oppose a state bill that would have an adverse effect on the Fed.