By Scott Lanman
Nov. 24 (Bloomberg) -- The appointment of Timothy Geithner as U.S. Treasury secretary would deprive Federal Reserve Chairman Ben S. Bernanke of his top troubleshooter on Wall Street, compelling the Fed chief to act fast to find a replacement.
Geithner’s departure would mean the loss of the Fed executive Bernanke has relied on most to keep the financial system from collapsing in this year’s credit crisis. His successor may be another official involved in the government’s response, such as Fed Governor Kevin Warsh or New York Fed markets chief William Dudley, economists said.
Bernanke turned to Geithner, 47, president of the New York Fed, to carry out the rescues of Bear Stearns Cos. and American International Group Inc., and to help stem market turmoil after the decision to allow Lehman Brothers Holdings Inc. to fail. Geithner also oversees most of the Fed’s special lending programs set up this year to channel more than $1 trillion to banks and other financial institutions.
Leadership of the New York Fed is “always an important post but vastly more important at the moment,” said former Fed Governor Lyle Gramley, now senior economic adviser at Stanford Group Co. in Washington. “It would be very important to fill it as rapidly as possible.”
Obama’s Announcement
President-elect Barack Obama will announce today that he will nominate Geithner as Treasury secretary, and will appoint Lawrence Summers, Treasury secretary under President Bill Clinton, to head the National Economic Council, aides said.
The president of the New York Fed serves as the vice chairman of the Federal Open Market Committee and is the only district bank president with a permanent vote on interest rates. The other 11 presidents rotate votes every two or three years.
The New York Fed is the largest of the 12 district banks and plays a unique role, serving as the central bank’s chief liaison to securities firms and trading with bond dealers to keep the Fed’s main interest rate close to the target set by policy makers. The bank, which employs about 2,800 people, supervises some of the biggest U.S. commercial banks, with examiners reviewing their books on a regular basis.
Should Geithner become Treasury secretary, Dudley, the New York Fed’s executive vice president for markets, may serve as interim president, Gramley said.
Dudley, 55, former chief U.S. economist at Goldman Sachs Group Inc., worked with Geithner on conceiving and operating the special lending programs. He joined the New York Fed in January 2007 after two decades at Goldman and is in charge of the central bank’s trading with Wall Street bond dealers.
Fed’s Main Source
As head of the bank’s markets group, Dudley serves as the Fed’s main source of information about financial markets. He speaks first at FOMC meetings.
The New York Fed’s First Vice President Christine Cumming would be another candidate to step in temporarily for Geithner. She is the No. 2-ranking official and designated alternate for Geithner at FOMC meetings in Washington.
Cumming, 56, who has worked at the Fed for three decades, substituted for Geithner at the Sept. 16 FOMC meeting, when policy makers voted to leave the benchmark interest rate at 2 percent. Geithner stayed in New York as officials negotiated the $85 billion bailout of insurer AIG.
Bank Supervisor
Before her promotion to first vice president in 2004, Cumming served as the bank’s research director for four years. She also has experience in bank supervision, serving as a senior vice president in that division of the Fed from 1994 to 1999. She began her career at the central bank as an international economist in 1979.
Besides Warsh, 38, who worked closely with Bernanke and Geithner during the crisis, another leading candidate to take over at the New York Fed is Peter Fisher, 52, who held Dudley’s post from 1994 to 2001, Fed watchers say. Fisher is now a managing director at money manager BlackRock Inc.
Fed officials may act faster than they did after the departure of William McDonough, who announced his retirement as New York Fed president in January 2003. Geithner wasn’t hired until 10 months later, after two other candidates, Peter Fisher and Stanley Fischer, then Citigroup Inc. vice chairman and now governor of the Bank of Israel, withdrew from consideration.
Board Nomination
The New York Fed president is nominated by the bank’s board of directors, which is chaired by Stephen Friedman, a former chairman of Goldman, Sachs & Co. Bernanke and Geithner would also have say in the selection, said Scott Pardee, former head of foreign-exchange operations at the New York Fed. The Board of Governors in Washington must approve the nominee.
The search for McDonough’s successor was led by Peter Peterson, founder and senior chairman of Blackstone Group. Advisers included Summers, former Treasury Secretary Robert Rubin and former Fed Chairman Paul Volcker, all Obama advisers.
Whoever succeeds Geithner must be well versed not only in financial markets but also in the politics of monetary policy and in Fed relations with other central banks, Pardee said. The New York Fed holds a seat at the Bank for International Settlements in Basel, Switzerland.
“It has to be somebody who can sit down with the CEOs, either as a group or one-on-one, of the major financial institutions in New York, and have an impact when he finishes talking to them, and then turn to the top people at the Treasury, the top people at the Federal Reserve Board, and do the same,” said Pardee, who teaches at Middlebury College in Vermont.
‘Pivotal Role’
Eugene Ludwig, a former U.S. comptroller of the currency and an Obama campaign adviser, said it would be “very” important for the Fed to move quickly to replace Geithner. “The New York Fed plays a pivotal role in a variety of ways in which other banks don’t,” Ludwig said in an interview.
“What you see that’s happened has been really a reflection of the work of all three of those folks,” said Ludwig, referring to Geithner, Paulson and Bernanke. Ludwig is chief executive officer of Washington-based Promontory Financial Group.
Geithner’s salary was $398,200 last year, more than double Bernanke’s compensation, which is subject to the federal government’s executive-pay rules. The Fed chairman and the Treasury secretary each receive a salary of $191,300 this year.
A departure by Geithner would add to several vacancies at the central bank.
Obama can nominate as many as three people to the seven- member Board of Governors. The Senate has declined to act on President George W. Bush’s nominations of Fed Governor Randall Kroszner for a full 14-year term and former Capital One Financial Corp. executive Larry Klane for open slot. Kroszner has continued to serve since his first term expired in January 2008.
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.
Posts
No comments:
Post a Comment