The Federal Reserve has played a huge role in lifting the economy out of the Great Recession with innovative monetary policy. It has been difficult throughout and at times controversial. For the Board of Governors and the district bank presidents in their Federal Open Market Committee deliberations, the followup — unwinding the massive purchases of longer-term Treasury and agency mortgage-backed securities without upsetting the financial markets — will not be a walk in the park either.
And if their task were not daunting enough, it could be complicated by looming vacancies on the board. It is not just Chairman Ben Bernanke who is expected to ride off into the sunset or seek greener pastures. Gov. Elizabeth Duke is already gone, effective Aug. 31. Gov. Sarah Bloom Raskin has been nominated to be deputy Treasury Secretary. The term of Gov. Jerome Powell is up Jan. 31, 2014. Vice Chair Janet Yellen is a potential nominee for chairman; her term as vice chair expires next October although her board tenure extends through Jan. 31, 2024.
Most news reports have President Barack Obama nominating a new chairman this month. After Yellen, a former president of the San Francisco Fed, the other most-often floated name is Larry Summers, former Treasury Secretary under President Bill Clinton, former chairman of the National Economic Council for President Obama, and former president of Harvard University.
If the implications for monetary policy were not enough, the specter of these empty chairs raises a couple of other worrisome issues. One is the loss of two governors with community bank perspectives: Duke as a community bank CEO and Raskin as a supervisor. Esther George, president and CEO of the Kansas City Fed, framed this dilemma as follows in a statement provided to BankNews:
“It is vital that the Federal Reserve continues to maintain its connection to community banks, which play a key role in our economy. With the departure of one governor who has experience as a community banker, and the nomination to the Treasury Department of another governor who previously served as a community bank supervisor, I think it will be important to fill this gap with experienced and knowledgeable individuals who can bring perspective to the issues faced by the entire range of financial institutions in this country.”
U.S. Sen. Jerry Moran, R-Kan., suggested one way to narrow the gap in a speech during the Kansas Bankers Association’s CEO & Senior Management Forum in Colorado last month: “I wish Bernanke’s successor would be Tom Hoenig,” referring to the current FDIC vice chairman and former Kansas City Fed president. “If not now, next time,” Moran added.
Another concern raised by the departures of Duke and Raskin is the watering down of gender diversity on the board. This is a troubling issue that extends through the larger Federal Reserve System with the pending retirement of Cleveland Fed President Sandra Pianalto, leaving George as the only female district bank CEO.
We may know as early as this month who will be President Obama’s nominee for Fed chairman — Yellen, Summers or neither of the above. Whoever it is, it will also be incumbent on the President to move with considerable urgency in filling the empty board seats. The current uncertainty is not helpful in stabilizing the financial markets and the overall economy. It is also hoped consideration will be given to at least one or two individuals who understand the difference between Wall Street banking and Main Street banking.
Bill Poquette is editor-in-chief of BankNews.
Copyright (c) September 2013 by BankNews Media