Rep. Barney Frank Calls for Less Bank Industry Influence at Federal Reserve

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Add Rep. Barney Frank, D-Mass., to a growing list of politicians, a list that includes Texas Gov. Rick Perry and former Alaska Gov. Sarah Palin, who don't like how the Federal Reserve operates.

The congressman who helped co-write the Dodd?Frank Wall Street Reform and Consumer Protection Act, today proposed a bill that would require the Senate to confirm all members of the Federal Open Market Committee, a group of 12 policymakers who are responsible for setting interest rates.

Currently, the FOMC consists of seven politically appointed Fed governors and five regional Federal Reserve Bank presidents. Some, like Frank, believe that the banking industry holds too much power on the committee.

"The five members are not subject to a confirmation process by elected officials, and instead are chosen by regional Federal Reserve Bank directors, who ... are appointed by large commercial banks in each region," Frank said in a statement released today, along with a plan to restructure the Federal Reserve.

But others have sharply criticized Frank's proposal and worry that such changes would turn the Fed, whose decisions have a profound impact on the pace of the economy, into a politically motivated body.

"The end result of this bill would be to further politicize the conduct of monetary policy, which is the last thing our economy needs right now," said Spencer Bachus, chairman of the Republican controlled House Financial Services Committee, in a statement to ABC News.

And many experts agree with Bachus. Interest rates set by the Fed have a direct impact on the amount of money commercial banks can lend, and the fear is that politicians with agendas could attempt to influence monetary policy, especially during an election year.

"The original rational made back in the 1930s is that we don't trust politicians ... to give them control of the money supply," said Sarah Binder, a senior fellow at the Brookings Institution.

Many politicians have recently focused their Fed attacks on the central bank's Chairman Ben Bernanke.

"Maybe it's time for Chairman Bernanke to cease and desist," said Palin while speaking to a trade group in last November.

Republican presidential hopeful Rick Perry called the chairman's activities "treasonous," and recently promised to deny Bernanke another term if elected.

"It's not unusual when the economy goes in the tank for members and politicians to look for someone to blame," said Binder.

Bernanke became a controversial figure in 2008, as some accused him of using the central bank's authority to expedite the bailout of the banks. Congress authorized the $700 billion bailout, but the Federal Reserve was largely responsible for distributing the money.

The result? The chairman received the lowest number of "yes" votes ever -- 70 to 30 in his Senate confirmation -- with members of both parties voting against his confirmation.

Binder is opposed to Frank's plan, and believes the five regional bank presidents serving on the Federal Open Market Committee are better representatives of the local economy than the policymakers the Senate would confirm under Frank's plan.

"Let's say you're worried about Wall Street or Washington politicians having too much control. You might favor having a system of regional representation," she said.

Martha Starr, a professor of economics at American University, likes the Frank plan and isn't worried about politicizing the Fed, as Fed governors currently hold 14-year terms -- which guards against them making short-term decisions for political gain.

"It would also be good to make sure that the elected representatives agree that they're able to serve in the public interest and not just in the interest of the banking sector," Starr said.

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