Trump Picks Expert on Regulation for the Federal Reserve

WASHINGTON – President Trump on Wednesday named Nellie Liang, a longtime employee of the Federal Reserve, an expert in financial regulation, to join the Fed's board of governors.

Ms. Liang, 60, played a key role in the Fed's efforts to strengthen financial system oversight after the 2008 crisis, including the creation of a new Fed Department to monitor financial stability .

She is well known and well-regarded in the closely linked world of central banks, and the decision of Mr. Trump has been applauded by his peers. Carl R. Tannenbaum, chief economist at Northern Trust, called the appointment "inspired choice".

Ms. Liang, a registered Democrat, would bring to the Fed Board deep experience in regulatory matters and the stability of the financial system, an area that Fed Chairman Jerome H. Powell has described as increasingly important. His views, however, seem to contradict those of Mr Trump, who called on the Fed to reduce its post-crisis restrictions on banks.

In a presentation last week at the Brookings Institution, Ms. Liang reiterated her support for stricter regulation after the crisis. "The regulatory and supervisory structure needs to be kept abreast of changes in the financial system and made it more resilient to a wider range of shocks," she said.

Krishna Guha, head of Evercore's ISC central bank strategy team, said Ms. Liang would likely be open to efforts to streamline and possibly reduce post-crisis security measures. He added, however, that "it is unlikely to favor a massive withdrawal from the post-crisis regime."

The Fed board oversees the work of the central bank as a financial regulator and, along with the presidents of the 12 regional reserve banks of the Fed, it also charts the course of monetary policy.

Before the crisis, these jobs were considered relatively distinct, at least in good times. Monetary policy experts have generally agreed that the Fed and other central banks should raise and lower interest rates for the sole purpose of controlling the pace of inflation. Since the crisis, however, some experts, including Ms. Liang, have argued that central banks should also pay attention to financial markets. If financial speculation reaches unsustainable levels, it may be wise to raise interest rates.

Authorities are also struggling with the role of regulation in creating asset bubbles. The Fed, for example, now has the power to limit bank borrowings if the economy seems to overheat by requiring banks to mobilize more of their financing in the form of capital.

Some Fed officials have argued in recent months that the Fed should impose such a requirement.

Ms. Liang, who is to be confirmed by the Senate, would become the first Asian American to serve on the Fed's board, and only the tenth woman. She spent most of her professional life at the Fed. A graduate of the University of Notre Dame in 1979, she then obtained a Ph.D. at the University of Maryland in 1986. The same year, she joined the staff of the Fed in Washington as a research economist.

She played a critical role in the stress tests of the big banks in 2009.

The following year, Ms. Liang was chosen by Fed Chairman Ben S. Bernanke at the time to head a new central bank division focused on monitoring financial stability. She held this position from 2010 to 2017, when she left her position at the Brookings Institution.

Trump has now made appointments for the three seats on the seven-member board of the Fed. Previously, Trump had appointed Michelle Bowman, Kansas State Banking Regulator, and Marvin Goodfriend, Professor of Conservative Economics at Carnegie Mellon University.

Ms. Bowman and Mr. Goodfriend are awaiting confirmation from the Senate.

Richard Clarida was sworn in on Monday as vice-president of the Fed.

If the remaining appointments of Mr. Trump were confirmed, this could be the first time since 2013 that the Fed would operate with a full complement of governors.