William McDonough, N.Y. Fed Chief in Twin Crises, Dies at 83By and
Greenspan describes him as formidable force in world economy
McDonough was also first chairman of public accounting board
William J. McDonough, whose decade-long tenure as Federal Reserve Bank of New York president included dealing with the market scare of Long-Term Capital Management LP and the aftermath of the Sept. 11 terror attacks, has died. He was 83.
He died Jan. 22 at his home in Waccabuc, New York, according to a statement released Thursday by the New York Fed. No cause was given.
“Bill McDonough was a formidable force in the global economy,” former Fed Chairman Alan Greenspan said in an email. “I and the rest of the international financial community mourn his passing.”
McDonough also served as the first chairman of the Public Company Accounting Oversight Board from 2003 to 2005. The nonprofit corporation, established by Congress in the aftermath of the Enron Corp. accounting scandal, oversees corporate audits.
McDonough’s tenure at the helm of the New York Fed, from 1993 to 2003, spanned some of the best -- and worst -- times for the U.S. economy and stock markets. He played a key role in helping ensure that banks kept credit flowing to South Korea during the Asian financial crisis in the late 1990s and was at the center of the Fed’s efforts to make sure the banking industry was prepared for the Y2K computer scare at the start of 2000.
He was a strong supporter of Greenspan’s decision in 1994 to begin announcing the central bank’s interest rate decisions, the first step toward making the Fed more transparent to the markets and the public.
Fluent in Spanish and French, McDonough came to the New York Fed in 1992 as head of Markets after spending 22 years at First Chicago Corp. The U.S. Navy veteran took over as president the following year.
“Bill shook up the bank internally in a refreshing way, giving a number of us a chance to succeed or fail on our own merit,” said Peter Fisher, a former Fed official who now teaches at Dartmouth College. “It was bracing.”
That was certainly the case in 1998, when McDonough and Fisher worked together to head off the bankruptcy of Long-Term Capital by arranging a private rescue of the giant hedge fund.
He acted as a “deft defuser of a dangerous financial mess, using the credibility and convening power” of the central bank to avert a collapse of Long-Term Capital, said Timothy Geithner, who succeeded McDonough as head of the New York Fed in 2003.
Geithner, who served as Treasury secretary from 2009 to 2013 and is now president of Warburg Pincus, described McDonough as someone with “market savvy” who was “respected and credible on the global stage.”
Said Fisher: “He understood there were risks of both action and inaction.”
Two days after the Sept. 11 terrorist attacks, which destroyed the World Trade Center towers that stood a few blocks from the New York Fed’s main office in lower Manhattan, McDonough explained to fellow Fed officials the daunting task of restoring everything from phone lines to public confidence.
The New York Fed could receive calls, but couldn’t initiate any. There were rumors that a nearby building, One Liberty Plaza, was at risk of falling or collapsing -- a scenario McDonough said threatened to cause a “monumental asbestos problem,” according to a transcript of the Sept. 13, 2001, meeting of the Federal Open Market Committee. Stock markets were closed, and McDonough conveyed Wall Street’s view that the Fed needed to help restore a sense of normalcy.
“It’s very interesting that some fairly traumatized people, even though they try to appear very cool as the heads of major institutions, believe that the confidence they have in the Federal Reserve is a very important asset our country has at the moment,” McDonough said.
Often in a pinstripe suit and sporting his trademark bushy eyebrows, McDonough was the Fed’s point man in overseeing the big Wall Street banks and financial markets.
Twelve months after the Sept. 11 attacks, he gave a speech at Trinity Church near where the towers had collapsed, calling attention to the disparity between rich and the poor and suggesting that Wall Street executives’ compensation was out of line.
“I remember it well because, on the first anniversary of 9/11, I had said to Bill, this is not the right speech for the first anniversary of 9/11. You should do something else,” said Thomas Baxter, a former colleague who’s now at Sullivan & Cromwell LLP. “And he said, ‘No, I really think this is an important topic, and it’s important to me, and I’ve got to do it, and I’ve got the platform.’”
Former New York Fed first vice president Ernest Patrikis said McDonough had a great ability to address a group, whether five or 500 people, “He could turn on the Irish charm” when he had to, Patrikis said.
After leaving the Fed, McDonough was appointed by the Securities and Exchange Commission to head up the accounting oversight board.
“He was a strong leader whose intellect, stature and unwavering commitment to principle helped establish the credibility of the organization, both domestically and internationally,” the PCAOB said in a statement. “Under his leadership, the Board established its regulatory approach and programs and forged the international relationships that have led to PCAOB inspections in 50 countries today and helped spread independent audit oversight around the globe.”
McDonough is survived by his wife, Suzanne Clarke McDonough, six children and 10 grandchildren.
— With assistance by Matthew Boesler