Is Senator Warren Proposing Musical Chairs at the Fed?

Robert Eisenbeis, Ph.D.
Tue Jun 1, 2021

At a hearing last week, Senator Warren told Randal Quarles, Fed vice-chairman for supervision, she was recommending that he not be reappointed to that position when his term was up in October to President Biden.  She had criticized Quarles’ appointment during his confirmation hearings in 2017 because of his long association with Wall Street and his view that financial institution stress tests needed to be softened. She continued similar criticism last week, noting that after Credit Suisse had been removed from the more stringent oversight applied to systemically important institutions, that the institution had subsequently incurred a $10 billion loss.  She neglected to mention that the loss was due to its domestic Swiss activities under the review of Swiss regulatory authorities.
But repositioning assignments at the Fed may not be as easy as it might seem, because the four-year terms of Fed chairman and vice-chairmen are separate from the 14-year terms for Fed governors. Quarles’s term as vice-chair for supervision is up in October of 2021, but his term as a board member isn’t up until 2032, so removing him from his vice-chair position does not force him to leave the board, nor does it free up a leadership position. Chairman Powell’s appointment as chairman is up in February 2022, but his term on the Board of Governors is not up until 2028. Vice-Chairman Clarida’s terms both as a governor and vice-chairman are up in January 2022, since he was appointed to an unexpired term as a board governor. It has often been the case that a governor who holds a management position such as chairman or vice-chairman has resigned if not reappointed. Indeed, only Marriner Eccles, who was not reappointed as chairman in 1948, opted to remain on the Board, serving until 1951. Despite that trend, a governor who is not reappointed as chair or vice-chair can choose to continue to serve on the Board, as Eccles did.

Since all but two of the governors currently serving have been appointed by Republican presidents to their present terms, they may be reluctant to resign to avoid providing a Democratic president appointment flexibility. But should President Biden decide to side with Senator Warren and not reappoint Randal Quarles as vice-chairman for supervision, he does have a number of options. First, there currently is a vacant position on the Board of Governors that expires in 2024. He could choose to fill that vacancy and also to appoint that person as vice-chairman for supervision. He could decide to wait to fill the position of vice-chairman for supervision when Board Member and Vice-Chairman Clarida’s position becomes vacant in 2022. Finally, he could appoint current Board Member Brainard as vice-chairman for supervision and then fill the other positions as they become available. While all of this seems like musical chairs, the key issue will be whether President Biden will reappoint Chairman Powell to another term as chairman. That decision, unlike the others, is likely to have market implications.

One final issue is just how supposedly disastrous Vice-chairman Quarles’ tenure has been since 2017. While many banks large and small failed during the financial collapse of 2007 and 2008, no large banks have failed during the COVID pandemic. Since Quarles’ appointment, nine small banks have failed, none of which were supervised by the Federal Reserve as their primary regulator – one in 2017, four in 2019, and four in 2020. None have failed in 2021. Of these, the largest was the Washington Federal Bank for Savings, with assets of $166 million, which failed in December 2017; and the smallest was the Resolute Bank, with assets of $27.1 million. None of these institutions posed a systemic risk to the financial system. Part of the reason that US banks have gotten through the current pandemic so far is that they were well capitalized and had ample liquidity, in part because regulators forced large institutions to increase their capital and because Federal Reserve policies have provided liquidity on generous terms to support short-term money markets. We must also recognize that the Federal Reserve is not the sole entity charged with ensuring financial stability. The FDIC and the Office of the Comptroller of the Currency (OCC) supervise banking institutions at the federal level; plus there is now the Financial Stability Oversight Council in the US Treasury, consisting of 15 regulators, of whom 10 are voting members including the Federal Reserve Board, the FDIC, the OCC, the National Credit Union Administration, the SEC, the CFTC, the Federal Housing Finance Association, and the Consumer Financial Protection Bureau. In addition, there are international regulators that also provide oversight of foreign institutions operating in the US.


Robert Eisenbeis, Ph.D.
Vice Chairman & Chief Monetary Economist
Email | Bio

Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.


Sign up for our FREE Cumberland Market Commentaries


Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.