WASHINGTON - Scott Alvarez, the Federal Reserve Board's new general counsel, vividly recalls the sense of awe he felt when, as a young lawyer, he was summoned to the central bank chairman's office for the first time.
More than two decades later the details of whatever weighty matter then-chairman Paul Volcker wanted to discuss are a blur to Mr. Alvarez, but "I was star-struck by the experience," he said. "I was in the room, and a lot of things were going on."
With a new title and a large office looking out on Constitution Avenue, Mr. Alvarez, 49, said in an interview that, even after 23 years at the central bank, he has not lost his enthusiasm for it or forgotten the impact it can have on its employees.
"It's very exciting to sit across the table from the board members and have them say, 'Scott, what do you think we should do here?' " he said.
Bankers and other Fed watchers are wondering what direction the central bank's new head lawyer, who has big shoes to fill, plans to take.
Mr. Alvarez did not speculate much about what his initial focus might be. Instead, he said he is looking forward to learning more about different aspects of the legal issues facing the Fed.
But his background lines him up squarely with some of the biggest banking issues on the central bank's roster. He has been at the table for many of the major banking rules and mergers of the past 20 years.
For example, in the interview he maintained the Fed's position against the Securities and Exchange Commission's proposed rule that interprets a section of the Gramm-Leach-Bliley Act and defines what actions banks have to push out to their affiliates.
Mr. Alvarez was one of the 1999 law's major architects ("There were a lot of late nights at the Fed and a lot of late nights on the Hill"), and he said the SEC is interpreting it too narrowly. "The law was supposed to allow the banks to continue doing the activities they've long been doing."
He also downplayed gripes some banks and banking lawyers have about the Fed's tendency to issue guidance instead of formal rules on some issues. Some bankers have said they could be held liable to guidance in court, even though it is not legally binding.
But Mr. Alvarez said the role of guidance has never changed, and he contended that it was a useful practice for both banks and the regulator.
"Our tradition has been to ask for comment or guidance when it's really important, but just by asking for comment, we aren't making it legally binding," he said.
Observers expect Mr. Alvarez to be cautious at the outset in how he steers the Fed's legal authority.
"He could set the tone and the vision for how aggressive and how accommodating they may want to be in either facilitating transactions or not," said Gilbert T. Schwartz, a partner at Schwartz & Ballen LLP. "I think he's going to be very conservative, at least initially. He grew up in the world of the board staff being conservative."
Mr. Alvarez's career at the Fed began when he had a summer job at the Federal Reserve Bank of New York during a break from law school at Georgetown University. When he graduated in 1981, he became a Fed staff attorney. In 1989 he was appointed an assistant general counsel. Two years later he became an associate general counsel.
On June 30, J. Virgil Mattingly Jr., a 30-year veteran of the central bank, retired as the general counsel. The Fed board said it chose Mr. Alvarez as Mr. Mattingly's successor because of his "exceptional skills, experience, and judgment."
The three associate general counsels working alongside him are Richard M. Ashton, who handles litigation; Kathleen M. O'Day, who handles international banking issues; and Stephanie Martin, who handles payments issues.
Mr. Alvarez's appointment won praise Wednesday on Capitol Hill.
"Scott Alvarez is … well known and highly regarded by the members and staff of this Committee, and we look forward to continuing to work closely with him in his new capacity," Sen. Paul Sarbanes of Maryland, the Senate Banking Committee's ranking Democrat, said before Fed Chairman Alan Greenspan gave his monetary policy report last month.
A former colleague of Mr. Alvarez also endorsed the appointment.
"I think Scott is going to really think things through," said Oliver Ireland, a partner at Morrison & Foerster LLP and a former Fed associate general counsel. "He's not going to make snap judgments."
In addition to his banking structure expertise, now Mr. Alvarez is going to be called on for legal advice regarding monetary policy, international banking, and litigation, among other things.
He played a large role in crafting Gramm-Leach-Bliley, the rule that established financial services holding companies.
One of the large merger applications he reviewed was the watershed one Citicorp and Travelers Inc. submitted in 1998. The deal set the stage for Gramm-Leach-Bliley.
The merger between a giant bank and a giant insurance company "showed the world that the market was moving toward this kind of affiliation," but people who thought companies that large should not combine reacted differently, Mr. Alvarez said.
He said one of the reasons he has stayed interested in bank policymaking is because of how much more complex banks have become since he started working at the Fed.
"Banking law has changed so much over the last 20 years," he said. "It keeps on evolving. It's never gotten stale."
