WASHINGTON — Federal Reserve Governor Frederic Mishkin plans to step down at the end of August and return to academia, the Fed announced, leaving the central bank further shorthanded as it deals with the credit crisis, possible recession and sweeping changes to financial regulation.
Mishkin will return to Columbia University's business school, from which he has been on leave since his appointment to the Fed in September 2006.
The Fed normally has seven governors but currently has only five because Senate Banking Committee Chairman Chris Dodd, D-Conn., has refused to move on White House nominations to those seats. Dodd has likewise refused to schedule a vote on the nomination of a sitting governor, Randall Kroszner, to a new term. Kroszner's term has expired but he is permitted to continue serving until a replacement is sworn in. Terms to the Fed board are 14 years, though members can be appointed to serve unexpired terms when Mishkin's term expires in 2014. Fed governors are nominated by the president and confirmed by the Senate.
Several months ago, Senate Democrats tried to orchestrate a deal with the White House that would allow the Fed to temporarily fill some of its vacant slots until a new president comes into office. Those talks collapsed, however.
When Mishkin leaves, that will drop the Fed's complement to just four governors, making it harder to conduct its business. Board meetings usually need a quorum of four governors, so the absence of just one could interfere with policy decisions and increase the work load on Chairman Ben Bernanke, Vice Chairman Donald Kohn, Gov. Kevin Warsh and Kroszner.
All governors have votes on the interest-rate-setting Federal Open Market Committee, along with five of the 12 regional reserve bank presidents. Mishkin's departure is unlikely to affect voting dynamics on the committee as he has always voted with Bernanke.
Mishkin has been an important intellectual force at the Fed in his two years there, making several academically meaty speeches on issues such as how to deal with asset prices and cushion the economy from the housing market's blow. That said, he is not considered one of the key architects of the Fed's response to the credit crisis in the last year, and his speeches have sometimes not represented where Bernanke's own inclinations were.
Before joining the Fed, Mishkin had a prominent reputation for his work in finance, monetary economics and central banking. He has published numerous books, including several text books, and has had several consulting assignments with foreign groups and central banks. The loss of that outside income and the cost of maintaining separate homes in Washington and the New York City area may play a part in his expected decision to return to Columbia, acquaintances say.
Columbia gave Mishkin a two-year leave when he left for the Fed but such leaves are routinely extended for established figures like Mishkin if requested.
Mishkin's departure wouldn't affect the Fed's ability to invoke its emergency powers to lend to nonbanks, as it did in March to rescue Bear Stearns Cos. from possible bankruptcy. While the Federal Reserve Act ordinarily requires that five governors vote in favor of such a loan, amendments passed after the Sept. 11, 2001, terrorist attacks permit the Fed to take such actions with fewer than five governors. The original loan to Bear was made with the approval of just four governors as Mishkin was unreachable at the time.
