WASHINGTON — The pending resignation of Federal Reserve Board Vice Chairman Donald Kohn is renewing concern over the central bank's independence from the Obama administration.
Kohn, the second-highest ranking official at the Fed, will be one of three vacancies on the seven-member Fed board when he leaves in June. His departure gives the administration a chance to have a long-term impact on the central bank that could go well beyond Obama's tenure as president.
Having already appointed Dan Tarullo as Fed governor and reappointed Ben Bernanke as chairman, the Obama administration will have the chance to pick five of the seven Fed slots after little more than a year in office.
The president nominates board members for 14-year terms, who must then be confirmed by the Senate.
"As they appoint their own people to the board, the board becomes more heavily Obama appointees, as opposed to Bush appointees," said Oliver Ireland, a partner at Morrison Foerster and a former Fed lawyer. "That makes it more the administration's board."
Some observers argued the Fed is already too close to the administration, having worked hand in glove during the financial crisis.
The Fed has been "very cooperative, in my opinion, too cooperative," said Allan Meltzer, an economist and professor at Carnegie Mellon University's Tepper School of Business.
Although the other two vacancies have languished for over a year, the White House pledged Monday to move quickly with a successor to Kohn before he resigns. Fed Gov. Frederic Mishkin left in August 2008, followed by Randall Kroszner in January 2009.
Historically, the Fed was required to have at least five members to take any significant action. Following the Sept. 11 terrorist attacks, Congress amended that rule to allow the central bank to act with fewer members.
The loss of Kohn is also a blow to the Fed's institutional history. Kohn, 67, worked at the Fed for 40 years, having joined the central bank as an economist at the Federal Reserve Bank of Kansas City in the early 1970s. He has been a Fed board member since August 2002.
"It just takes the most experienced voice away from the board table and that's a loss," said Karen Shaw Petrou, managing director of Federal Financial Analytics.
Among other things, Kohn helped to lead the stress tests of the largest financial institutions and directed the Fed's efforts to increase transparency.