Fed Governor Mishkin to Resign

With Several Vacancies, Central Bank's Leadership Already Stretched

A Federal Reserve governor said he would resign late this summer, which could leave the central bank shorthanded as it grapples with some of the deepest challenges in its history.

Frederic S. Mishkin will depart Aug. 31, after two years as a governor, a move that would leave the Fed's board of governors with four members if the Senate does not act before then on two long-delayed nominations. By law, the board of governors has seven slots, and it has never had fewer than five members in its current structure that started in 1935.

President Bush nominated two new Fed governors more than a year ago, Virginia bank executives Elizabeth A. Duke and Larry Klane, and has re-nominated Randall S. Kroszner, who continues to serve while awaiting Senate confirmation. The Senate Banking Committee has not acted on the nominations. Many Democrats prefer to keep the slots available to be filled by a potential Democratic president in January and have expressed concern that the nominees would favor the interests of banks over consumers.

Fed governors serve staggered 14-year terms, but as a practical matter they usually come and go far more often than that. If reconfirmed, Kroszner could stay in office until 2022. The term for which Klane was nominated expires in 2010 and Duke's in 2012.

The Fed has operated with five governors throughout the financial crisis of the past year, which has strained its current leadership. For example, because Mishkin was traveling and unreachable the night the Fed worked out an emergency loan to Bear Stearns on March 14, the central bank had to invoke a law that allows it to take such urgent action without the minimum five votes.

And each of the governors, in addition to high-profile responsibilities giving speeches and making monetary policy, has a portfolio of more mundane administrative responsibilities at the Fed. Mishkin supervises the economic research divisions of the central bank, trying to attract and retain top-flight economists who often receive lucrative offers from universities and the private sector. Another governor would need to take over those responsibilities. Already, Kroszner is running two such committees -- those that oversee bank regulation and consumer protection.

The potential talent drain comes as the Fed deals with difficult challenges in all the major areas it oversees. The economy is slumping and inflation is high, the banking system remains troubled and there is serious consideration underway about changing the regulation of financial institutions.

A White House spokeswoman called on the Senate yesterday to confirm Bush's nominees. "During a time of economic uncertainty, the Senate should recognize that the Fed needs full leadership, and we encourage them to swiftly confirm the pending nominees," Emily Lawrimore said.

A statement by Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) thanked Mishkin for his service but made no reference to any planned action on the nominees.

Mishkin is returning to Columbia University's business school, where he taught before coming to the Fed in 2006. Mishkin continued living in New York while working at the Fed, commuting to Washington during the week, and has told associates that he is eager to return to writing and teaching.

Mishkin, 57, is an irascible and often humorous academic with a long history researching the interplay between the economy and financial markets. He has given frequent speeches, often aimed at explaining the theoretical underpinnings of Fed actions to academic economists.

He has been a close ally of Bernanke on moving toward inflation targeting, an approach to set a firm goal for the inflation level and adjust interest rates to try to get there.

In March, Mishkin gave a speech saying that central banks should set such a target, not just a range. Its title was most un-Fed like: "Comfort Zones, Shmumfort Zones."