Vice Chairman Kohn to Leave Fed in June
By DAVID WESSEL And JON HILSENRATH
MARCH 1, 2010, 3:47 P.M. ET.
Donald Kohn, who helped steer the Federal Reserve through the financial crisis, said he would retire as Fed vice chairman in June, giving President Barack Obama a chance to reshape the Fed by filling this vacancy and two others on its seven-member board.
The opportunity comes at a delicate moment. The Fed is under political attack for its failure to prevent the financial crisis and the way it helped bail out the banks, and it is confronting the task of deciding when and how to raise short-term interest rates and drain the extraordinary amount of credit it pumped into the economy.
Daniel Tarullo, a Georgetown University law professor named to the Fed last year, has been mentioned as a potential successor to Mr. Kohn as a vice chairman, but he is said to prefer concentrating on the overhaul of the Fed's bank supervision.
The White House has been looking to add an economist to the board as well as a person versed in financial markets. Insiders say the combination of a cut in pay for some potential nominees and the intense vetting and Senate confirmation process has discouraged some possible candidates. Mr. Kohn's departure will leave just one economist, Mr. Bernanke, on the Fed board. Among potential economist candidates are Christina Romer, who chairs the White House Council of Economic Advisers, and Janet Yellen, president of the Federal Reserve Bank of San Francisco.
If Mr. Obama and the Senate move swiftly, new Fed governors could influence the timing of the Fed's eventual move to raise interest rates. But Mr. Bernanke's clout inside the Fed remains significant, and presidents of the 12 Federal Reserve regional banks—who aren't political appointees—can serve as a counterweight to the Fed governors in Washington.
Mr. Kohn, 67 years old, was at Mr. Bernanke's side for nearly every critical decision during the financial crisis, serving as the institutional memory of the organization where he has worked for 40 years. Mr. Bernanke assigned him some of the thorniest challenges in the crisis—from melting frozen commercial-paper markets to keeping peace among warring factions inside the Fed and among federal bank regulators.
"The Federal Reserve and the country owe a tremendous debt of gratitude to Don Kohn," Mr. Bernanke said. "He brought his deep knowledge, experience and wisdom to bear in helping to coordinate the Federal Reserve's response to the economic and financial crisis."
Mr. Kohn joined the Federal Reserve Bank of Kansas City staff in 1970 before finishing his doctorate in economics at the University of Michigan. He came to Washington in 1975, and worked his way up the ranks to oversee the Fed's influential monetary-affairs unit in the Greenspan years.
"Don was my first mentor at the Fed," Mr. Greenspan said in a Wall Street Journal interview last year, recalling seeking Mr. Kohn's advice on running his first meeting of the Federal Open Market Committee in 1987.
President George W. Bush appointed Mr. Kohn to the Fed board in 2002 and promoted him to vice chairman in 2006.
Laurence Meyer, a former Fed governor, has called Mr. Kohn "the most important non-chairman member of the board in the history of the Fed."
In a resignation letter to Mr. Obama released by the Fed, Mr. Kohn said the crisis had tested the "ability and dedication" of the Fed more than any time since the Great Depression, and said he was "confident that history will judge the Federal Reserve…to have met these challenges with great speed, imagination, and effectiveness."
Mr. Obama has named one Fed governor, Mr. Tarullo, and renominated Mr. Bernanke for a second term as Fed chairman. With some hesitation and a great deal of criticism, the Senate confirmed Mr. Bernanke 70-30 in January.
Members of the Fed board are named to 14-year terms by the president; the chairman and vice chairman serve four-year terms. Mr. Kohn's term as vice chairman expires June 23. His term as a Fed governor extends to 2016; his successor will serve out the remaining years.
The other Bush appointees to the Fed board are Kevin Warsh, a lawyer and former investment banker, and Elizabeth Duke, a former commercial banker. The Fed governors in Washington join the presidents of the 12 regional Fed banks in making monetary policy. Members of the Fed board earn $179,700. The chairman earns $199,700.
For decades as a Fed staffer, Mr. Kohn's most prominent moments were showing up on TV sitting behind Mr. Greenspan as the Fed chairman testified on Capitol Hill. After becoming a Fed governor, Mr. Kohn raised his public profile, responding at one hearing, for instance, to congressional complaints that the Fed was being too stingy with details of the counterparties who benefited from the rescue of the American International Group Inc. After that testy exchange, the Fed agreed to provide more information.
Mr. Kohn is in many ways the quintessential faceless Washington bureaucrat. When he lived in Virginia, he used to ride to work on a bicycle with the pants of his gray suit tucked into his black socks, parking the bike in the spot in the Fed garage reserved for his car. He currently splits his time between a weekend house in the waterside town of Annapolis, Md., and an apartment in his son's basement in a Maryland suburb. Among other central bankers, he is known for hikes he leads at the Fed's annual summer conclave at Jackson Hole, Wyo., that are so strenuous that some call it the "Don Kohn Death March."
Write to David Wessel at capital@wsj.com and Jon Hilsenrath at jon.hilsenrath@wsj.com
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