Ex-New York Fed chief McDonough dies; led bank during LTCM, 9/11
William J. McDonough, whose decade-long tenure as Federal Reserve Bank of New York president included dealing with the market scare of Long-Term Capital Management LP and the aftermath of the Sept. 11 terror attacks, has died. He was 83.
He died Jan. 22 at his home in Waccabuc, New York, according to a statement released Thursday by the New York Fed. No cause was given.
"Bill McDonough was a formidable force in the global economy," former Fed Chairman Alan Greenspan said in an email. "I and the rest of the international financial community mourn his passing."
McDonough also served as the first chairman of the Public Company Accounting Oversight Board from 2003 to 2005. The nonprofit corporation, established by Congress in the aftermath of the Enron Corp. accounting scandal, oversees corporate audits.
McDonough's tenure at the helm of the New York Fed, from 1993 to 2003, spanned some of the best — and worst — times for the U.S. economy and stock markets. He played a key role in helping ensure that banks kept credit flowing to South Korea during the Asian financial crisis in the late 1990s and was at the center of the Fed's efforts to make sure the banking industry was prepared for the Y2K computer scare at the start of 2000.
He was a strong supporter of Greenspan's decision in 1994 to begin announcing the central bank's interest rate decisions, the first step toward making the Fed more transparent to the markets and the public.
Fluent in Spanish and French, McDonough came to the New York Fed in 1992 as head of Markets after spending 22 years at First Chicago Corp. The U.S. Navy veteran took over as president the following year.
"Bill shook up the bank internally in a refreshing way, giving a number of us a chance to succeed or fail on our own merit," said Peter Fisher, a former Fed official who now teaches at Dartmouth College. "It was bracing."
That was certainly the case in 1998, when McDonough and Fisher worked together to head off the bankruptcy of Long-Term Capital by arranging a private rescue of the giant hedge fund.
"He understood there were risks of both action and inaction," Fisher said.
Two days after the Sept. 11 terrorist attacks, which destroyed the World Trade Center towers that stood a few blocks from the New York Fed's main office in lower Manhattan, McDonough explained to fellow Fed officials the daunting task of restoring everything from phone lines to public confidence.
The New York Fed could receive calls, but couldn't initiate any. There were rumors that a nearby building, One Liberty Plaza, was at risk of falling or collapsing — a scenario McDonough said threatened to cause a "monumental asbestos problem," according to a transcript of the Sept. 13, 2001, meeting of the Federal Open Market Committee. Stock markets were closed, and McDonough conveyed Wall Street's view that the Fed needed to help restore a sense of normalcy.
"It's very interesting that some fairly traumatized people, even though they try to appear very cool as the heads of major institutions, believe that the confidence they have in the Federal Reserve is a very important asset our country has at the moment," McDonough said.
Twelve months after the attacks, he gave a speech at Trinity Church near where the towers had collapsed, calling attention to the disparity between rich and the poor and suggesting that Wall Street executives' compensation was out of line.
"I remember it well because, on the first anniversary of 9/11, I had said to Bill, this is not the right speech for the first anniversary of 9/11. You should do something else," said Tom Baxter, a former colleague who's now at Sullivan & Cromwell LLP. "And he said, 'No, I really think this is an important topic, and it's important to me, and I've got to do it, and I've got the platform.'"
Former New York Fed first vice president Ernest Patrikis said McDonough had a great ability to address a group, whether five or 500 people, "He could turn on the Irish charm" when he had to, Patrikis said.
After leaving the Fed, McDonough was appointed by the Securities and Exchange Commission to head up the accounting oversight board.
"He was a strong leader whose intellect, stature and unwavering commitment to principle helped establish the credibility of the organization, both domestically and internationally," the PCAOB said in a statement. "Under his leadership, the Board established its regulatory approach and programs and forged the international relationships that have led to PCAOB inspections in 50 countries today and helped spread independent audit oversight around the globe."
McDonough and his wife, Suzanne Clarke McDonough, had six children and 10 grandchildren.