Tuesday, September 21, 2010

New Fed Rules & Commercial Bank Presidents: Does It Even Matter?

Sometimes it's worth considering the output of a system, before getting excited about changes to its inputs.

In this case, I'm referring to a recent Wall Street Journal article professing concern that Chase's Jamie Dimon doesn't feel he can "perform his duties on the Fed board" because of recent financial regulatory reform legislation.

Is the the same Fed which has been reduced to a 0% interest rate policy and quantitative easing in order to effect monetary policy in the US? The Fed which is dominated by its chairman, currently known for throwing liquidity at any crisis, rather than let natural systemic reactions help to right the nation's economy?

Having work with several CEOs of large US banks in my past, I'm wondering just what it is for which Dimon is required on a regional Fed board. Even that of New York.

I'm one of those people who doesn't believe that large company CEOs magically become omniscient and smarter, i.e., someone they never were before, just by being anointed with the title.

In Dimon's case, he was never considered a monetary or economic policy savant when he carried Sandy Weill's bags for years at Shearson, American Express, Travelers or Citigroup. Why should he have such wisdom now?

The gritty, operational details of banking, the expertise with which might be a necessity on a regional Fed board, aren't generally possessed by bank CEOs, either.

In short, I wonder just what a bank CEO can provide to a Fed board that reports and analysis from his/her bank's various functions can't, with greater specificity?

The most important element of the Journal article to me was the potential conflict now created by new legislation and the existing Federal Reserve. It could well be that the recently-passed law improperly and illegally infringes upon Fed powers. Or maybe it's a legal curtailment that constitutes a sort of 'back door' curbing of Fed powers which has been threatened by Congress, but never implemented, for decades.

That would seem to be the real story. Not just whether a certain bank CEO on a certain regional Fed board is no longer able to "perform his duties."

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