The US Fed needs a boring bank regulator

United States Federal Reserve building (File Image)

Narayana Kocherlakota

The collapse of Sarah Bloom Raskin’s candidacy to head banking supervision at the Federal Reserve represents a major setback for financial policy in the United States. Given how important the position is for the country’s financial stability, and given how politicised the effort to fill it has become, I see one way forward: Depoliticise the process by nominating a long-time Fed staffer.

Congress created the position of vice chair of supervision and regulation at the Federal Reserve Board in 2010, as part of the Dodd-Frank financial reform legislation. The Barack Obama administration never nominated anyone for the job, but Fed Governor Daniel Tarullo essentially assumed the associated responsibilities. Tarullo resigned in 2017 after the election of Donald Trump, who appointed Randal Quarles to the post later that year.

Both Tarullo and Quarles were highly knowledgeable — and highly political. Tarullo had been a senior official in the Bill Clinton administration, Quarles in both Bush administrations. Their approaches to regulation reflected their respective Democrat and Republican backgrounds, leading to large and counterproductive policy swings driven by electoral outcomes. This undermined the Fed’s reputation for being independent and non-partisan, potentially harming the credibility of its monetary policy, too.

For its own sake, the Fed needs to restore some balance. To that end, it would be wise to work with the Joe Biden administration to select an overtly apolitical and technically skilled candidate. I can think of at least three, all of whom hugely impressed me during my time as President of the Minneapolis Fed:

Michael Gibson, a PhD economist and 30-year Fed veteran. He has exactly the right kind of experience, having served as director of the central bank’s division of supervision and regulation for more than a decade.

J Nellie Liang, another PhD economist who worked at the Fed for 30 years. In 2010, she was the founding director of the division of financial stability. Not long after she left the Fed in 2017, US President Donald Trump nominated her to the Board of Governors. She now serves as an official in the Biden administration.

Mark Van Der Weide, a lawyer who has been on the Fed’s staff for more than 20 years. He played a key role in formulating the central bank’s implementation of Dodd-Frank. Since 2017, he has served as general counsel to the Board of Governors.

Regulatory policy can’t be effective when it’s so politicised that its subjects don’t know what to expect, or how long any given rule will last. Appointing a candidate such as Gibson, Liang, or Van Der Weide would help address this problem. Biden should do so without delay.

Narayana Kocherlakota is a Bloomberg Opinion columnist. He is a professor of economics at the University of Rochester and was president of the Federal Reserve Bank of Minneapolis from 2009 to 2015. Views are personal, and do not represent the stand of this publication.