Standoff

Fed Nominees Fade Into Oblivion as Election Year Looms

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President Barack Obama speaks at the U.S. Capitol in Washington on Dec. 9, 2015.

Photographer: JIM WATSON/AFP/Getty Images
  • Corrects 23rd paragraph to say Klane wasn't confirmed
  • Senate Banking Committee chair tells White House `We're busy'

President Barack Obama’s nominations to fill two open seats on the Federal Reserve Board are all but dead.

Senator Richard Shelby, the Alabama Republican who controls the fate of those nominees as chair of the Senate Banking Committee, and the White House are locked in a dispute that has blocked the appointments of Allan Landon, the former chief executive officer of Bank of Hawaii Corp., and Kathryn Dominguez, an economics professor at the University of Michigan in Ann Arbor. And, not for the first time, a looming presidential election is making any confirmation less likely with each passing month.

Allan Landon
Allan Landon
via Bloomberg

“At this point I think the chances of the two named Fed nominees being confirmed before the election are very slim,” said Camden Fine, president of the Independent Community Bankers of America, who backed both nominees.

The standoff means the Fed Board of Governors in Washington will remain short-handed perhaps well into 2017, as officials reel in extraordinary monetary stimulus and finish writing post-crisis banking rules. The board has had just five serving members since May 2014, two short of its full complement. One resignation would vault the regional Fed bank presidents into a voting majority on the policy-making Federal Open Market Committee.

“One can debate whether this would be a good thing or not, but the system was not designed expecting such a scenario,” Justin Schardin and Aaron Klein, of the Bipartisan Policy Center in Washington wrote in a Dec. 4 blog post regarding the balance of votes on the FOMC.

Washington-Centric

The central bank’s Board of Governors, led by the chair, has dominated the FOMC since passage of the Banking Act of 1935, which shifted the Fed’s center of gravity to Washington. Eleven of the 12 regional Fed bank presidents share four votes on an annually rotating basis, with the head of the New York Fed having a permanent vote.

Fed spokesman David Skidmore declined to comment on the nominations or how board vacancies affected the bank.

A full term for a Fed governor is 14 years, with appointments staggered every two years. The two vacant seats expire in January 2016 and January 2018. Governors whose terms expire are not required to step down until a replacement is confirmed. Those who haven’t served a full 14-year term can be reappointed.

The ICBA’s Fine said Landon would fill a crucial hole on the board, which currently has no members with community banking experience. Small banks have been lobbying heavily for relief from regulations imposed since the financial crisis that were designed to make the biggest banks safer.

“When there’s not a community bank perspective on the board to add that voice to the rule-making process, community banks can suffer,” he said.

Fed Chair Janet Yellen, in testimony before Congress’s Joint Economic Committee on Dec. 3, said that "small community banks really are suffering from regulatory overload" and the Fed was working to reduce the burden.

Kathryn Dominguez
Kathryn Dominguez
via Bloomberg

The Fed has traditionally included at least one community banker on the board, and Congress made that a legal requirement in January. The last such member, Elizabeth Duke, stepped down in 2013.

Shelby, meanwhile, is holding up the nominations over another unfilled job: the Fed vice chair for supervision. Created by the Dodd-Frank Act of 2010, the vice chair would lead the central bank’s efforts on issues related to banking supervision.

‘We’re Busy’

“They ought to do that first because that’s the law, the law they wrote and then violated,” Shelby said in an interview Tuesday. “Until they do that, we’re busy.”

Governor Daniel Tarullo chairs the board’s Committee on Bank Supervision. Asked at a public event on Nov. 17 why he hasn’t been nominated for the post, Tarullo said the question should be directed to the White House.

White House spokeswoman Brandi Hoffine declined to comment on when or whether the administration intended to name someone for the job.

"We continue to urge the Senate to give two highly qualified nominees for the Federal Reserve Board of Governors, Allan Landon and Kathryn Dominguez, a hearing and move expeditiously to confirm these nominees,” she said.

‘Leading Opponent’

This isn’t the first time Shelby has derailed an Obama Fed nominee. In 2010, even before Republicans took control of the Senate this year, he rallied opposition to the appointment of Nobel-prize winning economist Peter Diamond, saying he didn’t think Diamond was qualified for the job. Diamond withdrew, citing Shelby as “the leading opponent.”

Of 13 executive branch nominations referred to Shelby’s committee this year, none has been approved, according to a tally provided by the staff of Ohio Senator Sherrod Brown, the leading Democrat on the banking panel.

Posts that require Senate confirmation have traditionally stalled in the year of a presidential election. Fed appointments, seen as among the least political, were an exception to that pattern until 2008, according to Fine.

Connecticut Democrat Christopher Dodd held up three Fed nominations as President George W. Bush’s second term wound down. Nevada Senator Harry Reid, then majority leader, made it clear he felt the next president should fill the openings.

Of the three, only Duke was confirmed and only after Fed Governor Frederic Mishkin announced he was stepping down at the end of August 2008, threatening to reduce the board to four members. The Bipartisan Policy Center’s Klein said lawmakers may do the same, expediting a confirmation hearing for one nominee, if another governor steps down this year or next.

Without a fresh resignation, however, Landon and Dominguez may well go the way of Larry Klane, a Bush nominee who languished for 20 months and was never confirmed.

Dominguez didn’t respond to messages seeking comment. Landon said he still hoped to have the opportunity to serve at the Fed.

“There’s not a lot you can do,” Landon said in an interview. “I suppose I’m committed to see the process through, hopeful that I’ll get a hearing and get a confirmation, and be a member of the board. It would be a treat.”

(Corrects 23rd paragraph to say Larry Klane was never confirmed. A previous version incorrectly stated he never received a hearing.)
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