Roger W. Ferguson Jr. may become the banking industry's strongest advocate on the Federal Reserve Board.
Although virtually unknown to the industry, Mr. Ferguson brings banking experience that has been missing from the Fed since the April 1995 retirement of John P. LaWare, the former Shawmut National Corp. chairman.
A lawyer and consultant, Mr. Ferguson spent the past two decades advising banks on everything from mergers to new powers to marketing strategies.
"I bring a pragmatic, practical judgment that comes from being mainly in the private sector," Mr. Ferguson said in his first interview since joining the Fed Nov. 5.
"I bring first-rate training in law and economics .... I bring a private-sector experience which will be a nice complement to my colleagues who have more of an academic or public-sector training."
Mr. Ferguson declined to identify any of his former clients, citing confidentiality agreements at McKinsey & Co. But he said they included money-center, regional, and foreign banks.
He is getting rave reviews from the few industry officials with whom he has had serious policy discussions. "He was very in tune with the issues and was very thoughtful," said Richard Whiting, general counsel at the Bankers Roundtable. "He has a methodical approach. He wants to know the where's, the how's, and the who's."
Fed Governor Susan M. Phillips, chairwoman of the banking supervision and regulation committee, touted his experience. "He is very sensitive to how supervisory and regulatory proposals might affect banks," she said. "He looks at the kind of burden regulations can impose."
"He is going to make a very substantial contribution and very substantial impact," agreed Fed Governor Edward W. Kelley Jr. "He surely is an important addition to our strength in the banking area."
Mr. Ferguson appears to have a real enthusiasm for the job. A native of the nation's capital, he said he has dreamed of serving on the Fed's board ever since Andrew Brimmer became the first black governor.
"This is something I have wanted to do since high school," said Mr. Ferguson, who is the third black Fed governor. "It was one of the reasons I got my PhD in economics. It has always been in the back of my mind."
He has avoided politics, although he has connections with several top administration officials. "I was on a few persons' rolodexes," he said.
As an undergraduate at Harvard, he was taught by Janet L. Yellen, the former Fed governor who now is chairman of the Council of Economic Advisers, and was classmates with Deputy Treasury Secretary Lawrence Summers.
"He was an excellent student," Ms. Yellen said. "He has a real flair for economics and very strong analytic abilities. He thinks problems through and will be a very distinguished governor."
On policy matters, Mr. Ferguson said he is convinced that the banking, securities, and insurance businesses eventually will meld. "The market is driving in that direction," he said. "Technologies are changing. Customers are expecting a range of services.
"The challenge is for Congress and the regulators to keep up."
He supports the gradual expansion of bank powers, explaining it gives the industry time to adjust. For instance, he said the Fed's process of easing cross-marketing restrictions and expanding the amount of revenue section 20 units may earn underwriting securities has allowed the industry to slowly build expertise in the business.
"That is a very good model," he said. "The Fed initially moved cautiously and created some firewalls. But as the industry and supervisors became more comfortable, they removed the firewalls."
Mr. Ferguson opposes expanding bank powers through the Office of the Comptroller of the Currency's operating-subsidiary rule, saying the government subsidizes banks by giving them access to the discount window and deposit insurance. Banks could use this subsidy to gain an unfair competitive advantage over nonbanks, he said.
Instead, he said, banking companies should conduct nonbanking activities-such as securities underwriting-in holding company subsidiaries, which are less likely to benefit from the subsidy.
"I don't think the OCC rule is a good idea," he said. "The Fed's policy and approach are better. As an economist, I do believe there are some net subsidies that do flow to banks."
On the consolidation craze, Mr. Ferguson said the government should not block megadeals simply to keep institutions from growing too big. Rather, regulators should focus solely on the competitive effects in the market.
The Fed, periodically over the past five years, has considered changing the way it evaluates mergers to account for the expanded presence of nonbank lenders. The current measure links a bank's market presence to deposit levels.
Mr. Ferguson said he supports the current system but is open to change. "At this point we have it right," he said. "But we need to be mindful that things are changing."
He is confident U.S. banks will pull through the problems in Southeast Asia relatively unscathed. Domestic banks not only have a small exposure to Asia compared with institutions in other countries, Mr. Ferguson said, but also have strong capital reserves and record earnings.
Mr. Ferguson is a Harvard University man, having earned his bachelor's degree in economics in 1973, law degree in 1979, and PhD in economics in 1981 all at the elite school.
He spent three years as an associate at the New York law firm of Davis, Polk & Wardwell, where he worked with investment banks on public debt and equity securities offerings, mergers, and new product development.
As a consultant at McKinsey & Co. since 1984, Mr. Ferguson worked with a half dozen commercial banks on revamping their check clearing, lockbox, and money management units. He also helped a large bank expand into the small- business market, devised a post-acquisition strategy for a California thrift, and developed a commercial banking blueprint for a Japanese bank breaking into the U.S. market.
"I was trying to help the banks become better at serving their customers," he said.
He was promoted to director of McKinsey's research and information systems in 1991, supervising 400 economists and librarians. He worked extensively on Internet and intranet projects.
Mr. Ferguson has traveled the globe, including postings in London, Brussels, Madrid, Milan, Rome, Buenos Aires, Bombay, New Delhi, Hong Kong, and Seoul.
"Being at McKinsey helped me to become a citizen of the world," he said. "I got a sense of the strength and importance of the U.S. among other countries."
Low-key in demeanor and conservative in dress, Mr. Ferguson keeps an immaculately maintained office. Married with two young children, he has little time for hobbies or sports. "I spend most of my free time being a daddy," he said. "That is one of the most rewarding things you can do."
