The Federal Reserve's top official on the West Coast has been chosen to head its powerful New York regional bank, putting a seasoned economist into a key monetary policymaking role to help offset new Fed Chairman Jerome H. Powell’s lack of an economics background.
But the choice of John C. Williams, 55, who has been president of the Federal Reserve Bank of San Francisco since 2011, is controversial because he helped regulate Wells Fargo & Co. during its fake accounts scandal and is another white male at an institution critics complain sorely lacks diversity.
Williams was announced Tuesday as the next president of the Federal Reserve Bank of New York. The selection was made by a subset of the bank’s board of directors and approved by the Fed’s Board of Governors in Washington.
The choice does not need Senate confirmation. Williams will take over on June 18, succeeding William Dudley, who announced last fall that he would step down after holding the job since 2009.
“After a thorough process, my fellow search committee members and I felt that John best fulfilled the criteria we’d identified as well as the feedback we’d received through our public outreach efforts,” said Sara Horowitz, who was co-chair of the New York Fed’s search committee.
The New York Fed presidency is the most influential among the 12 regional Fed banks, which are set up like private corporations and are not technically part of the federal government. The Fed’s Board of Governors delegates to them the day-to-day supervision of bank holding companies and some other financial institutions in their regions.
The New York Fed oversees some of the nation’s largest financial institutions on Wall Street. While the 11 other regional presidents rotate into yearlong positions on the the Fed’s monetary policymaking committee, the New York Fed president is a permanent member and serves as the committee’s vice chairman.
Williams has worked at the Fed since earning his doctorate at Stanford University in 1994, taking a one-year leave of absence in 1999-2000 to serve as senior economist at the White House Council of Economic Advisors under President Clinton.
“I look forward to joining the talented team of New York Fed colleagues and to carrying out the unique responsibilities entrusted to us to protect the economic prosperity and financial stability of the United States' economy,” Williams said.
Unlike Dudley, who worked for years at New York investment bank Goldman Sachs Group Inc., Williams has no experience working in financial markets or banking. That makes his selection “somewhat surprising,” said Ed Mills, a Washington policy analyst for financial services firm Raymond James.
But Williams has the academic economics background that Powell lacks, Mills said. Powell, who has served on the Fed Board since 2012, is the first chairman in four decades who does not have an economics degree.
“You get this pick because there is a need for a steady hand on monetary policy,” Mills said.
Noting the New York Fed position doesn’t need Senate confirmation, he said: “This is the quickest way of getting real monetary policy expertise among the permanent voting members of the Fed.”
Williams succeeded former Fed Chairwoman Janet L. Yellen as president of the San Francisco Fed. He was a strong supporter of the Fed’s aggressive policies to fight the Great Recession and Yellen’s move to slowly start raising rock-bottom interest rates in 2015 as the economic recovery has strengthened. Yellen has publicly praised him.
But the choice of Williams, which had been reported to be close, is not popular among some Democratic lawmakers and liberal activists.
The San Francisco Fed helps regulate Wells Fargo, and the bank’s creation of millions of accounts without customer authorization started before he was named president but continued after his tenure began. Former Wells Fargo Chief Executive John Stumpf, who retired in 2016 in the wake of the scandal, had served as the San Francisco Fed’s representative on a Federal Reserve advisory committee.
Wells Fargo sales practices were first reported by the Los Angeles Times in 2013. The bank also is regulated by the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau.
In 2016, Wells Fargo agreed to pay $185 million to settle investigations into its sales practices by those two regulators and Los Angeles City Atty. Mike Feuer. The bank did not admit any wrongdoing but said its employees had opened millions of checking, savings and credit card accounts that customers never authorized.
The Fed, which oversees Wells Fargo’s holding company, did not take any action until this year. On Feb. 2, the Fed’s Washington Board of Governors ordered Wells Fargo to cap its growth and improve its corporate governance in response to "widespread consumer abuses and other compliance breakdowns."
Dennis Kelleher, president of Better Markets, a public interest group that supports tougher financial regulations, said the San Francisco Fed was “AWOL” during the Wells Fargo unauthorized accounts scandal.
“The San Francisco Fed either did not know this was happening under its nose or knew but did nothing to stop it,” he said. “Either way, it was a gross dereliction of duty that should be punished not rewarded.”
In response to reports that Williams would get the New York Fed job, Sen Elizabeth Warren (D-Mass.) last month called for the Fed’s Board of Governors to hold off on approving his selection until the Senate Banking Committee could conduct a hearing “about his qualifications and the process that led to his selection,”
“Mr. Williams’ track record raises several questions, including about his fitness to supervise Wall Street banks given the San Francisco Fed’s inadequate supervision of Wells Fargo during its many consumer scandals,” she said.
Mills said the complex regulatory structure of the Fed and the other banking agencies make it difficult to pinpoint who was at fault for not detecting the problems at Wells Fargo earlier.
“It was in many ways a collective failure,” he said, adding that it was not clearly the San Francisco Fed’s fault. “”What was hidden from regulators, too, is one of the biggest questions.”
In February, Rep. Maxine Waters (D-Los Angeles) led a group of more than two dozen congressional Democrats who wrote to Powell and the leaders of the New York Fed’s search committee, calling on them to consider a diverse field of candidates for the job.
She and others have pushed the Fed to make more diverse choices and lauded the selection last year of USC professor Raphael Bostic as president of the Federal Reserve Bank of Atlanta, making him the first African American to lead one of the Fed’s 12 regional banks.
Still, the lawmakers’ Feb. 26 letter said that “presidents and directors at the Reserve Banks remain disproportionately male, white, and from corporate and financial backgrounds.”
Waters said Tuesday that Williams is qualified for the job and “has a great background.”
“I’m not disappointed, but what I do want to know is how much outreach was done, how much recruitment was done and who was in the running,” she said.
If no diverse choices “were in the running, that means the outreach and recruitment process was inadequate,” Waters said.
Horowitz and other leaders of the New York Fed’s search had said they were committed to a wide-ranging search that stressed diversity, integrity and values. They said they hired two search firms, including one that focuses on diversity issues.
Shawn Sebastian, field director of Fed Up, a campaign by labor, community and liberal activist groups that wants the Fed to enact pro-worker policies, was less forgiving than Waters. He said the choice of Williams damaged the Fed’s legitimacy and credibility.
“Today, the Federal Reserve concluded another opaque and controversial Reserve Bank presidential selection process by ignoring the demands of the public and choosing yet another white man whose record on Wall Street regulation and full employment raises serious questions,” he said.
In January, Fed Up sent the search committee a list of nine potential candidates who are women or people of color. Among them were Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis and the 2014 Republican nominee for California governor, as well as UC Berkeley economist Christina Romer, a top economic advisor to President Obama.
Reacting to Tuesday’s announcement, Warren said that Fed officials “ignored calls to choose one of many qualified alternatives who might have brought a new perspective.”