Rep. Barney Frank, the chairman of the U.S. House of Representatives Financial Services Committee, hopes to craft a compromise bill with lawmakers who want to open Federal Reserve monetary policy decisions to audits, a spokesman for Frank said on Saturday.

A bill sponsored by Texas Republican Rep. Ron Paul that would allow the Government Accountability Office, a federal watchdog agency, to audit Fed interest-rate decisions has won the co-sponsorship of more than half of the House.

Fed Chairman Ben Bernanke has warned the bill would compromise the U.S. central bank's policy-making independence and could undermine financial markets and the economy.

The Financial Times reported on Saturday that Frank hoped to bring forward compromise legislation that would safeguard the Fed's independence, while enhancing transparency and creating checks and balances for the central bank's use of emergency lending powers.

Steven Adamske, a spokesman for Frank, told Reuters the congressman would work with Paul on a compromise bill. He said compromise language had not yet been written and provided no further details. A spokesman for Paul could not be reached.

The Financial Times said Frank told constituents at a recent town hall meeting that the House would probably approve legislation in October. I want to restrict the powers of the Federal Reserve in a number of ways, the paper quoted Frank as saying.

It said he cited the proposed creation of a Consumer Financial Protection Agency, which would strip the Fed of its consumer protection function.

The Obama administration has proposed the creation of a consumer agency as part of a broad financial regulatory overhaul that would also put the Fed in charge of regulating large financial firms whose failure could imperil the economy.

The Financial Times said Frank was concerned about the central bank's ability to lend to a wide array of firms -- not just banks -- during unusual and exigent circumstances.

Since the financial crisis struck two years, the Fed has used this authority to prop up a number of non-bank financial firms with billions of dollars in loans, including insurer American International Group.

The Fed's actions have angered many lawmakers who are concerned the central bank has put taxpayer money at risk. Fed officials have defended their actions as necessary to prevent a deeper credit crisis and widespread damage to the economy.

Bernanke, who President Barack Obama nominated this week to serve a second four-year term at the helm of the central bank, told lawmakers in July that the Fed understands the need to be accountable to taxpayers but that monetary policy decisions needed to be shielded from political interference.

In congressional testimony on July 22, he signaled a willingness to work toward a middle ground. We are quite willing to work with Congress to try to figure out exactly where the line should be, he said.

Bernanke is widely expected to win needed Senate backing for a new term as Fed chairman, but the central bank's aggressive efforts to stem the financial crisis have stirred controversy that is likely to color his re-nomination hearing.

His current term expires on January 31, 2010.

(Reporting by Deborah Charles; Writing by Tim Ahmann; Editing by Eric Walsh)

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