President Barack Obama has nominated Janet Yellen to succeed Ben Bernanke as Federal Reserve chairman. The president said Yellen, a former professor at the University of California at Berkeley and president of the Federal Reserve Bank of San Francisco, would fully pursue the Fed’s “dual mandate” of reaching maximum employment while controlling inflation. Once confirmed by the Senate, Ms. Yellen will also play a key role in the financial regulatory system, since the central bank also oversees the country’s largest, most systemically important financial institutions.
When Ms. Yellen takes the lead at the Federal Reserve, big banks will remain on a tight leash as the new chairman plans to focus on reining in their size, riskiness and the ways they fund themselves, observers say. Yellen, currently the Fed’s vice chairman, has not spoken often on financial regulatory policies, instead focusing the bulk of her public speeches on how monetary policy tools can be used to boost the still struggling economy and ease elevated unemployment rates.
But when Yellen has ventured into the realm of regulatory policy, she has followed other Fed governors on issues including hiking capital requirements for the biggest banks, improving the regimes intended to take them apart when they fail, and bringing more rules governing the repo markets and other short-term funding mechanisms employed by big banks. On Oct. 9, President Obama had this to say:
Janet is committed to both sides of the Fed’s dual mandate, and she understands the necessity of a stable financial system where we move ahead with the reforms that we’ve begun — to protect consumers, to ensure that no institution is too big to fail, and to make sure that taxpayers are never again left holding the bag because of the mistakes of the reckless few.
Janet Yellen’s experience as the head of the San Francisco Fed — where she spotted many of the faulty lending practices employed by Countrywide Financial Corp. and other subprime lenders, but was told by Washington colleagues not to act — may give her more of a pulpit to push banks. Because she has not worked for a major financial institution, instead working in academia and at the Fed. Ms. Yellon will have credibility with some big bank critics. Robert Weissman, President of Public Citizen, had this to say:
She is not known as a creature of Wall Street like Larry Summers, [former Obama Treasury Secretary] Tim Geithner or [former Clinton Treasury Secretary] Robert Rubin, who believe in the failed notion that unregulated financial institutions that engage in excessively risky activities somehow serve our economy.
It appears that the Yellon appointment was a good one. Hopefully, she will be able to keep the big banks in line. If her history and tenacity are any indication of what she will do, I believe that she will make the banks toe the line.
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