Treasury’s Miller Juggles Volcker With Housing Overhaul

Miller Proves Treasury’s Maven on Volcker Rule to Fannie Remake
“It is not a small lift to say we are going to reform housing finance credit going forward,” said the U.S. Treasury's Mary Miller, calling it a “fascinating exercise.” Photo: Brendan Smialowski/Bloomberg

Mary Miller knows all about risk.

As an executive at T. Rowe Price Group Inc. during the 2008 financial crisis, she reassured worried bond traders and portfolio managers when a competitor, the $62.5 billion Reserve Primary Fund, failed after investing in the debt of Lehman Brothers Holdings Inc.

Four years later, Miller is the U.S. Treasury official coordinating five agencies that are writing the Volcker rule intended to limit risk at banks. Regulators are now taking a closer look following JPMorgan Chase & Co.’s trading loss of at least $5.8 billion and analyzing whether the trade would have been allowed if the rule had been in place.

“Mary Miller is critical to the Volcker rule getting done,” said Kathryn Dick, former deputy comptroller at the Office of the Comptroller of the Currency and now a managing director at Promontory Financial Group LLC in Washington. “It’s a very complicated task, but if anyone can orchestrate an agreement, it’s Mary, because of her credibility within the industry.”

In the aftermath of JPMorgan’s loss and two congressional hearings in which lawmakers questioned Chief Executive Officer Jamie Dimon, pressure has increased to finish crafting the rule’s language. Regulators have said they are unlikely to finish before the July 21 deadline. Miller said in June she thinks the work will be finished this year.

Miller, 56, spent 26 years at T. Rowe Price, including as director of fixed income, head of the municipal bond department and portfolio manager. While she has kept a low profile in Washington, no regulator has a wider-ranging role in U.S. financial policy.

Mediating Volcker

In addition to mediating Volcker and coordinating writing of other rules under the Dodd-Frank financial overhaul law, Miller is leading the Treasury’s efforts to revamp mortgage companies Fannie Mae and Freddie Mac, and supervising sales of Treasuries under the $16.4 trillion federal debt limit.

A single week in mid-May illustrates the eclectic nature of her job as Treasury’s undersecretary for domestic finance. Miller traveled to Qatar, Abu Dhabi and Saudi Arabia to discuss U.S. debt sales; stopped in London to talk with Bank of England policy makers; ran meetings with regulators in Washington on the Volcker rule and went to the White House to discuss housing issues with community activists and religious leaders.

In between, she met with officials, including National Economic Council Director Gene Sperling and Comptroller of the Currency Thomas Curry. She also visited business leaders in Baltimore, her adopted hometown, with Treasury Secretary Timothy F. Geithner, who told the executives that Miller “has one of the coolest, hardest, most consequential jobs in the world.”

S&P Downgrade

Miller was at the center of a dispute in August between the Obama administration and Standard & Poor’s over the firm’s first-ever downgrade of U.S. creditworthiness. Treasury officials found what they called a $2 trillion “basic math error” in S&P’s explanation.

She phoned S&P the evening of the announcement to complain that the justification for the downgrade was inconsistent with the firm’s own data. The ratings firm, citing the level of government debt and the contentious political climate in Washington, went ahead with the change even after Miller and other Treasury officials objected.

Following the downgrade, yields on 10-year Treasuries fell to as low as 1.45 percent in June from almost 3 percent last August, indicating investors view the U.S. as more creditworthy, not less.

‘Incredible Portfolio’

Miller has an “incredible portfolio” that’s “expanded by where we are in history right now,” said Kenneth Bentsen, an executive vice president for the Securities Industry and Financial Markets Association, Wall Street’s largest lobbying group.

The Volcker rule, named for its original proponent, former Federal Reserve Chairman Paul Volcker, is intended to reduce the chances that banks put depositors’ money at risk. Lenders and their lobbyists complain that it’s so broad and poorly defined that it will force them to leave business lines and could actually increase risks. It attracted about 18,000 comment letters.

Bankers want allowances for so-called market-makers who buy and sell securities to establish prices, and clarity on whether they can take positions on sovereign debt. Dimon said at a June 19 congressional hearing that he doesn’t know if the Volcker rule would have allowed what JPMorgan’s trade had “morphed into.”

‘Final Rule’

Regulators are working on “how do we take a proposed rule and get it to a final rule that is going to take into account all these issues, and how do we land in a better place,” Miller said in an April interview. “I don’t think it’s an impossible task.”

Miller said she is “squarely in the camp of ‘let’s get it right.’ Let’s not hurry up and do something that will weaken reforms or create unintended consequences.”

Her experience at Baltimore-based T. Rowe Price boosts her credibility with Wall Street executives, who say she understands their business. “She has an enormous grasp of the issues, and a lot of this is very detailed, very complex,” said lawyer H. Rodgin Cohen, senior chairman at Sullivan & Cromwell LLP, whose clients include JPMorgan and Goldman Sachs Group Inc.

Advocates for tougher rules question whether regulators so closely tied with the industry can be too sympathetic toward it.

Corporate Lobbyists

Since corporate lobbyists outnumber those representing so-called public interest groups, the Treasury and other financial regulators need to be more “proactive” in getting “a diversity of views on the most important issue facing our country outside of national security,” said Dennis Kelleher, president of Better Markets, a non-profit group that advocates tighter financial regulation.

Regulators “need to understand that they have a very different role when they’re working on behalf of the public,” he said, declining to comment specifically on Miller.

“You put on a different hat when you come here,” said Miller, who served as assistant secretary for financial markets from February 2010 until March 2012, when she was confirmed as undersecretary by the Senate. “When I worked for a company I worked for my clients. We worked for the people we were managing money for and we took that very seriously. Now I’m managing the assets of the U.S. government and I’m representing the taxpayers.”

Lower Profile

Her public profile is lower than that of other Treasury officials under Geithner. She prefers to “keep her head down” and doesn’t seek the spotlight, said her younger brother, James John, an official at the International Monetary Fund.

Miller said she spends about one-third of her time on Dodd-Frank issues, including Volcker and overseeing work by the staff of the Financial Stability Oversight Council, a group of regulators charged with preventing a crisis. Another third is dedicated to the housing-finance overhaul. The rest is spent on issues including debt management.

Fannie and Freddie were taken into U.S. conservatorship in 2008 after losses stemming from investments in risky loans brought them to the brink of insolvency. They have been sustained by almost $190 billion in taxpayer aid.

“It is not a small lift to say we are going to reform housing finance credit going forward,” said Miller, calling it a “fascinating exercise.”

Baltimore Weekends

Since she’s usually at the office by 7:30 a.m. and often there until 9 p.m., Miller stays in Washington most days. She returns to Baltimore for weekends, when she catches up on her tennis game, reading and running. She’s been married since 1980 to James D. Miller, an attorney specializing in regulation of drugs and clinical research who’s now a visiting scholar at the Johns Hopkins Bloomberg School of Public Health in Baltimore. They have two sons, Thomas, 26, and James, 22.

Miller grew up in a household focused on education. She was born in Bonn, Germany, where her father, James John, was working for the Princeton, New Jersey-based Institute of Advanced Study. She grew up in Ithaca, New York, where James, who turns 84 this month, was a history professor at Cornell University for almost four decades.

After graduating from Cornell in 1977, Miller spent about a year in the House of Representatives as a legislative aide. She earned a master’s degree in city and regional planning from the University of North Carolina at Chapel Hill before returning to Washington to join the Urban Institute, where she wrote about the fiscal and capital issues facing state and local governments.

Credit Analyst

In 1983, when it was far less common for women to work in the financial services industry, Miller answered an advertisement for a job with T. Rowe Price as a credit analyst in the municipal bond department. She rose to become head of the fixed-income division, and a member of the management committee starting in 2004.

A crucial moment for Miller at T. Rowe Price came during the 2008 financial crisis, when Reserve Primary Fund became the biggest money-market fund and the first in 14 years to “break the buck,” meaning the value of a share fell below $1 and investors faced losses.

“One of her views was that you don’t want to take extreme risk in a money market fund because you’re not really going to get paid for taking that risk,” said Chairman Brian Rogers, who started at T. Rowe Price a year before Miller. “She just has a very organized mind about risk and return, and that was evident in how we managed our money-market funds.”

Not Surprised

Rogers said he wasn’t surprised Miller left for the government given her experience at the Urban Institute and on Capitol Hill. White House staffers recommended Miller after talking with industry executives and others about possible candidates for the assistant secretary job.

When Miller left the firm, she stood to make millions of dollars from T. Rowe Price stock options earned during her quarter-century there. She exercised $8.9 million in options in 2010, according to a federal financial disclosure form. She also gave up options worth at least $1.8 million when she left.

Miller recognizes that the volume and variety of her work reflect a critical moment for financial regulation as the Obama administration tries to complete Dodd-Frank rules and a new housing-finance structure.

“This time is just so consequential in terms of restoring faith and confidence in our markets and getting it done right,” she said. “I think every day I feel the weight of that.”

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