Window Closing for Obama to Fill Federal Reserve Board

Source: The Washington Examiner

President Obama is close to missing a significant opportunity to influence monetary and regulatory policy for years to come.

With Congress running out the few legislative days it has before the November elections, Obama has not nominated candidates for the two open positions on the Federal Reserve Board of Governors. If Republicans take control of the Senate, Obama’s ability to appoint his preferred candidates would be limited.

The White House did not respond to a request for comment about its plans for nominating officials to the seven-member board, and lawmakers on the Senate Banking Committee who would handle any nominations declined to say whether the administration had notified them of plans to submit candidates.

In the past however, the Obama administration has been slow to name candidates to the board, which is responsible for oversight of U.S. banks and conducting the nation’s monetary policy.

Earlier this year, Obama nominated three candidates to the board after Chairman Ben Bernanke left the agency, which was in danger of becoming critically undermanned after he was replaced by fellow board member Janet Yellen as chairwoman. Obama did not, however, name replacements for two spots opened up by departing governors.

It is possible that nominees could be forced through during the lame-duck period after November’s midterm elections. But it takes on average 137 days for financial regulator candidates to clear the Senate once nominated, according to the Bipartisan Policy Center. Although candidates are often rushed through at the end of a Congress, the necessities of vetting the candidates, arranging interviews with senators and scheduling hearings — let alone navigating a vote on the Senate floor — would make it difficult.

“It is an important opportunity, or missed opportunity if they’re not filled,” said the center’s Aaron Klein of the nominations. Klein, who was previously a chief economist on the Senate Banking Committee and managed Fed nominations, called the nominations a chance for a president “to extend part of your legacy.”

Federal Reserve governors have the third-longest tenured offices — 14 years — in the federal government, Klein noted, behind judges given lifetime appointments and the comptroller general, who has a 15-year term directing the Government Accountability Office. By waiting to install Fed nominees and risking the possibility of a GOP Senate in the 114th Congress that would limit his choices for candidates, Obama would be passing on a chance to shape the Fed for years after his own tenure.

In particular, a fully staffed seven-member board constitutes seven votes on the 12-member Federal Open Market Committee that sets monetary policy. The other five voting members are a rotating cast of presidents of the 12 regional Federal Reserve banks. Regional bank presidents are not selected by the president, meaning that an understaffed board diminishes the executive branch’s influence on monetary policy.

Furthermore, board governors make final decisions regarding the Fed’s broad oversight and regulation of the banking system. Missing board members means that unappointed staff members are given more discretion to use the Fed’s powerful regulatory tools.

“The problem has to do with the influence of the board staff relative to the board committee members,” wrote former Fed official Bob McTeer in a note about understaffing at the Fed earlier this year.

Lawmakers on both sides of the aisle have called on Obama to nominate a community banker to fill one of the empty board spots, including Senate Banking Committee Chairman Tim Johnson, D-S.D., and ranking member Mike Crapo, R-Idaho. In June, a group of 86 U.S. representatives led by Reps. Sean Duffy, R-Wisc., and Ed Perlmutter, D-Colo., wrote a letter to Obama urging him to nominate a community banker. Currently, all the board members are academic economists, except for Jerome Powell, a former investment banker.

A representative for the Independent Community Bankers of America said the organization had not heard of any plans to nominate a community banker.

Obama said that nominating the chairman of the Fed is “one of the most important appointments that any president can make,” upon nominating Yellen. In June, top Obama economic adviser Jeff Zients said on Bloomberg Television, “We’re absolutely committed to filling those spots…. This is a high priority and we’re working on it.”