Rivlin Attacks Role as Fed's No. 2 with Gusto

Alice M. Rivlin has charged head-first into the role of vice chairman of the Federal Reserve Board.

In her first four months, the former director of the Office of Management and Budget has emerged as the Fed's liaison with international banking groups and has grabbed the reins as the central bank's chief administrator.

"This is a very interesting, challenging job," Ms. Rivlin said in a recent interview. "I'm enjoying it a lot more than I expected I would."

The move to the central bank was a big shift for Ms. Rivlin, who had spent much of the last two decades crunching budget numbers. She was founding director of the Congressional Budget Office, running it from 1975 until 1983. She also served more than three years in President Clinton's OMB, the last two years as director.

Her only banking experience came in the 1980s when she was on National Bank of Washington's board of directors. The District of Columbia-based institution, which has since failed, was suffering from bad real estate and foreign economic development loans. She did not play an active role in trying to save the institution and was not one of the many former directors sued by the Federal Deposit Insurance Corp.

"It was an interesting experience," she said, "but it wasn't a heavy dose of banking."

Though Ms. Rivlin said she has yet to develop firm positions on many issues facing the industry, her ideas are clearly starting to take shape.

On the technology front, for instance, she expressed doubt that smart cards would ever become popular in the United States, noting that credit and debit cards already offer many of the same features.

"The question in people's minds is: Are smart cards just the fashion of the moment?" she said. "In the U.S., smart cards have been more talk than action."

Ms. Rivlin also said she's not ready to reserve to banks the power to issue smart cards. "I wouldn't take that position right now," she said.

On some subjects, Ms. Rivlin appeared to march in step with the banking industry. For example, she played down fears that mergers between major in- market competitors would cause antitrust problems.

"We are seeing more consolidations in banking," she said, "but we also are seeing more mobility now in banking with banks moving across state lines."

Her biggest concern is regarding banks in rural areas where there are no competing institutions in neighboring towns, she said. Those merger applications will get greater scrutiny, she predicted.

Ms. Rivlin praised the Community Reinvestment Act. "There is certainly some evidence that minority communities are being better served and that more minorities are getting mortgages," she said.

Even unsuccessful CRA protests can benefit the community by pointing banks toward lending and service opportunities, she added. "One of the principle things CRA has accomplished is that it has raised the consciousness of who is being served," Ms. Rivlin said. "If that is true, then even unsuccessful protests can have a purpose."

Ms. Rivlin also embraced the idea that bank supervision is integral to the Fed's monetary policy role. "You get a better feel how bankers think and how banks work," she said.

But she said regulators need to make their exams as efficient as possible. "It is important to do it well and in the least burdensome way," she said.

Although not ready to recommend any radical regulatory overhaul, she did support changes proposed in Regulation Y that would cut in half the processing time for merger applications, eliminate tying restraints for nonbanks, and open more data processing services to banks.

Fed Chairman Alan Greenspan has appointed Ms. Rivlin chief administrative governor. That means she's responsible for running the Fed's day-to-day operations in Washington. The Fed chairman also tapped Ms. Rivlin to lead the strategic planning committee, which is examining the central bank's role in the payments system.

"I'm very interested in how institutions work and in good management," she said. "I like helping to strengthen institutions."

Ms. Rivlin said she's planning a top-to-bottom review of the Fed's Washington operations. "I don't have an impression that there is a lot of fat," she said. "But every institution needs to examine itself on a continuing basis."

Staffing levels will be the first issue under her microscope. Ms. Rivlin said she wants to ensure that the Fed board, which employs 1,713, doesn't have more people than it needs in Washington. But she added that the Fed would continue to grow if Congress keeps expanding its jurisdiction. For example, the recently enacted thrift fund capitalization law requires the Fed to study electronic banking and small-business lending.

Ms. Rivlin also said she wants to revamp the Fed's budgeting process, focusing more on how each expenditure helps the central bank meet policy objectives.

Perhaps her greatest interest is the international sector. She said the United States must assume a major leadership role in groups such as the World Bank, International Monetary Fund, and Bank for International Settlements. And she flatly rejected the idea that the United States shouldn't be involved overseas.

"It is important for us to play a role in international regulation," Ms. Rivlin said. "I don't share the xenophobia of the moment. We have to find ways to avoid international catastrophes that spread rapidly from country to country."

Although Chairman Greenspan will remain the central bank's primary representative to these groups, Ms. Rivlin said she expects to work actively on several projects.

One goal is to expand the membership of international financial groups to include more developing nations. "The club has got to be larger," she said.

She also said she wants the Bank for International Settlements, through its Basel Committee, to continue refining risk-based capital standards. This offers one of the best ways to prevent a crisis at a single institution from spreading to other countries, she said. And she wants to push for rules requiring all financial institutions to disclose more about the makeup of their investment portfolios.

Industry officials seem genuinely impressed by Ms. Rivlin.

"She is a thoughtful person," said Charles T. Doyle, chairman of Texas First Banks. The two met at a gathering of bankers who advise the Fed on policy issues. "She weighs carefully her position on things, and she asks very good questions. That bodes well for anyone who serves on an institution like the Federal Reserve Board."

"There is no question that she is a person who has enormous knowledge of economics and its implications across the economy and particularly in the banking industry," said Joel L. Naroff, chief economist at First Union National Bank. "She does recognize the relationships between economic forces and financial activities and the role financial activities play in the economy. I'm very comfortable with her being on the board."

Ms. Rivlin said she expects to serve at least most of her 15-year term on the Fed board. That's a sharp turnaround for a woman who initially didn't want the job. In fact, she told President Clinton in February that she couldn't take the post because she was still working on the administration's 1996 budget. "He said, 'I know that, but they'll never confirm you before May,'" she said.

The President turned out to be right. Democratic senators, upset over the President's renomination of Mr. Greenspan to be chairman, held up for more than three months the appointments of Ms. Rivlin and Laurence H. Meyer to the Fed board.

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