The Wells Fargo scandal was not only a failure of the bank’s management and board, but also a failure of regulators to uncover it and mitigate damages.
That’s why I was disappointed to read that John Williams, president of the Federal Reserve Bank of San Francisco, is being considered for the second most important economic policy position in the country, as head of the New York Fed.
Surely, the New York Fed’s board could find someone more suited for this critical position than the top San Francisco Fed regulator directly overseeing Wells Fargo’s holding company during the bank’s cross-selling and phony-account problems, which later came to light in 2016.
Williams has served in his current position since 2011, which was when Wells Fargo was reportedly engaging in its unbelievable banking shenanigans. If he could not properly oversee a huge institution in his backyard, how could he possibly oversee the banking and finance giants on Wall Street?
And, what did the Fed do about Wells Fargo? They did nothing when it was happening and, in fact, the San Francisco Fed appointed the now-disgraced former chief executive of Wells Fargo, John Stumpf, to the Federal Reserve’s esteemed federal advisory council in 2015 — and then reappointed him in 2016, months before the bank’s misdeeds came to light.
Former Fed Chair Janet Yellen, who previously ran the San Francisco Fed herself, imposed some growth sanctions on the bank on the last day of her job earlier this year. But this does not get the Fed off the hook for its failure to properly oversee and regulate Wells Fargo.
Putting aside the San Francisco Fed’s failure with Wells Fargo under his watch, Williams also lacks the requisite credentials to perform the job.
There’s an important question to be asked of any applicant for this important role: Where were they during the financial crisis and the ensuing recession?
Williams, a macroeconomist and researcher, served as an executive vice president and director of research at the San Francisco Fed from 2009-2011. Book smart yes, but not Wall Street smart.
We need a New York Fed president with Wall Street and international finance experience rather than a longtime Fed official who has never worked in the finance industry. The previous two New York Fed presidents were often criticized because they worked at Goldman Sachs, but a Wall Street and finance background is exactly what is needed for this position. The New York Fed president must not only monitor and understand market movements as they happen but also be able to get immediate feedback from key market participants and contacts from Wall Street and abroad. Having a Rolodex of other economists and professors may work in the ivory tower, but certainly not for the person responsible for the world's most important money desk, especially during a crisis.
Surely, the New York Fed’s board can find someone with the requisite experience in finance outside of the Fed system — perhaps even someone to reflect some needed diversity.