Obama to Name Tarullo to Open Fed Seat, Democrat Says

By Hans Nichols and Rich Miller

Dec. 18 (Bloomberg) -- President-elect Barack Obama today will name one of his economic policy advisers, Daniel Tarullo, to an open seat on the Federal Reserve Board, a Democrat familiar with the decision said.

Tarullo, 57, a professor at Georgetown University's law school, was President Bill Clinton's top adviser on international economic policy. The Democrat who said Tarullo is Obama's choice for the Fed seat spoke on condition of anonymity.

Tarullo, if confirmed by the Senate, would join Chairman Ben S. Bernanke and other members of the Board of Governors as they seek to ease the worst credit crunch in seven decades and reverse a deepening, yearlong recession.

``They like to have at least somebody that's well versed in international aspects of finance and economics,'' said David Cohen, director of Asian forecasting at Action Economics in Singapore and a former Fed official.

Obama plans a news conference this morning in Chicago, where he also will name brokerage regulator Mary Schapiro to head the Securities and Exchange Commission and Gary Gensler, a former Treasury Undersecretary, to head the Commodity Futures Trading Commission, according to Democratic officials.

The Fed cut the benchmark interest rate this week to a record low ranging from zero to 0.25 percent and pledged to “employ all available tools” to revive the economy, including emergency lending that has expanded the central bank's balance sheet to a record $2.3 trillion.

The economy has yet to show signs of vitality after nine rate cuts by the Fed in 14 months and $1.4 trillion in extra liquidity. Unemployment rose to 6.7 percent last month, the highest level since 1993, while builders broke ground on the fewest new homes since record-keeping began in 1947.

Two Vacancies

The Fed board has two vacancies on its seven-member panel, after the departures of Columbia University Professor Frederic Mishkin in August and former banker Susan Bies in March 2007.

Tarullo would stand out from current Fed governors. He doesn't have an academic background in economics or a career history in banking, with law being the focus of his educational background. Among the current five Fed board members, three have doctorates in economics, one is a former investment banker and one is a former community banker.

Tarullo was an early supporter of Obama, frequently representing the president-elect's campaign in economic discussions and debate. His expertise lies in the international arena, including trade.

Tarullo was President Bill Clinton's personal representative, or sherpa, to the Group of Eight countries, overseeing and coordinating policy with America's partners for four summits.

Chief Counsel

Before joining the Clinton administration in 1993, he served as chief counsel for employment policy on the staff of Democratic Senator Edward M. Kennedy of Massachusetts. He also worked in the antitrust division of the Justice Department.

Given his background, Tarullo is likely to play a prominent role in helping to fashion and coordinate international efforts to overhaul financial services regulation in the wake of the current credit crisis.

In a book published in October by the Peterson Institute for International Economics in Washington, Tarullo was critical of the international regulatory and banking capital regime created under so-called Basel Two. The new structure may have worsened the credit crisis if it had been fully in place because it put a low risk weighting on residential mortgages, he said.

Tarullo proposed a number of reforms, including adoption of a simple leverage ratio that international banks would need to meet and a requirement that they issue subordinated debt. He also recommended that the Basel Committee -- the panel of international regulators that fashioned Basel Two -- be given the role of monitoring and scrutinizing banking regulation in individual countries.

Escapes 'Labeling'

John Podesta, the former Clinton chief of staff who's now co-chairman of Obama's transition team, has described Tarullo as a policy maker who “escapes easy labeling.”

“That makes him especially valuable in finding new solutions to a new set of thorny problems,” added Podesta, who is president of the Center for American Progress, a self-described progressive advocacy group in Washington.

Obama will have the chance of naming three governors to the Fed board. Governor Randall Kroszner's term expired in January, and he has continued to serve since then under Fed rules until the Senate confirms him or a successor is found.

The Democratic-majority Senate declined to hold a vote on President George W. Bush's nomination of Kroszner to a new, full 14-year term.

To contact the reporters on this story: Hans Nichols in Washington at hnichols2@bloomberg.net;