WASHINGTON The unexpected decision by Lawrence Summers to withdraw his name from consideration as the next Federal Reserve Board chairman has once again upended the contest for the job, leading to renewed speculation about who will take the post.
Although many see Janet Yellen, the Fed's current vice chairman, as the leading candidate, a host of industry observers and representatives said she may be passed over, considering President Obama's apparent ambivalence about her nomination.
If she's seen as a "conciliation prize" the president may feel more inclined to "hit the reset button and start over," said Camden Fine, president of the Independent Community Bankers of America. "It's a bit hard to divine where the president's mind is with regard to Yellen. I know the conventional wisdom is that it's going to be Janet Yellen and it may well be but I don't think it's a slam dunk."
Others industry observers agreed, saying the president will have to decide whether to go with Yellen, a candidate he does not know very well and was clearly not his first choice for the job, or throw open the door to other contenders.
"If they were not impressed with her before, she can't do anything between now and then to further impress them, so maybe they do want to look at other options," said Tony Fratto, a partner at Hamilton Place Strategies and a former top White House and Treasury official in the Bush administration.
Other serious candidates have included Donald Kohn, former vice chairman of the Fed, and Roger Ferguson, another former Fed vice chairman. Fratto suggested that the president may even consider renominating Ben Bernanke, the sitting Fed chairman, for a third term, although he acknowledged that was a long shot.
One critical factor is whether the White House blames Yellen for the unprecedented support she received over the summer as it became clear that Obama was considering nominating Summers to the post. A third of Senate Democrats signed a letter endorsing Yellen for the job, while more than 300 economists also signed a letter advocating on her behalf.
"If somebody believes she was the instigator for that 300 economist letter in her favor then she'll have a tough time getting the nomination," said an industry source who spoke on condition of anonymity. "If it is viewed in the White House that she did comport herself with dignity and stood back, then I think she will get the nomination. It will depend on whether or not if anyone takes it personally that she 'won' and Summers 'lost.'"
The public campaign for both Summers and Yellen, which was highly unusual, may have compromised both candidates, some said.
"There's never been this kind of kind of campaign to be the chairman of the Fed largely because it really damages the institutions and whoever wins," said the industry source. "This was an unprecedented struggle for leadership of the Fed."
Summers abruptly pulled out of the running on Sunday evening even as most outsiders continued to see him as likely to receive the nomination. In a letter to the president, Summers predicted an "acrimonious" confirmation battle that he warned could damage both the Fed and the economy if he were nominated.
By that time, it had already become clear Summers would face a tough confirmation battle before the Senate Banking Committee. Sen. Jon Tester, D-Mont., said Friday he would not support Summers, while Sens. Sherrod Brown and Elizabeth Warren had signaled they would also oppose the former Treasury secretary. While Summers may have had sufficient support to prevail in the full Senate, the Banking Committee vote was looking unlikely.
"I didn't see how just looking at the composition of this [Senate Banking] committee Summers could get through it," said Fratto. "It's not built to clear the nomination of Larry Summers."
A senior financial services industry official, who also spoke on condition of anonymity, concurred.
"The way the Senate Banking Committee has been stacked with Warren and Brown and some others, you have these really lefty, progressive senators who are not super representative of the Senate Democrat majority," said the official.
What this means for bankers is unclear, though even prior to Summers' withdrawal, industry representatives warned the battle could undermine the central bank's independence.
Wayne Abernathy, executive vice president for financial institutions policy and regulatory affairs at the American Bankers Association, said that some may see the nominee as compromised, carrying "baggage related to getting the job."
"Their independence will be second guessed," said Abernathy.
Despite repeated media portrayal of Summers as the "candidate of Wall Street," bankers had kept their distance from the Fed chair issue, both publicly and privately.
"I don't believe there was an industry stand partly because the industry is mostly too smart to do that, given if you're wrong, then you're really screwed," said the first industry source.
Still, some industry executives worry whether Yellen, if she is nominated, will feel "beholden" to Democrats, including Warren, on the issue of 'too big to fail' and tougher bank regulation given her and others very public support of her candidacy.
"If Janet Yellen was nominated to be chairman without all of this noise, I don't think anyone would mind," said a third industry representative who spoke on condition of anonymity.
It's unclear exactly how quickly the president will act to make a final decision. He may opt to nominate a Fed chair as soon as possible following this week's two-day Federal Open Market Committee meeting or perhaps hold out until after the pending fiscal fight with Congress.
But Fratto said the timing of a nomination will give the first concrete sign whether Yellen is now the president's choice.
"If he doesn't name Yellen next week, you kind of have to wonder if he's ever going to name her," said Fratto. "I would take it as a bad sign at this point if he doesn't name. The signal it would send to me is they really are looking for someone else."