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Trump Administration Struggles to Find Community Banker for Fed Board

27 Jun 2017 9:30 am
By Kate Davidson and Rachel Witkowski 

The Trump administration is struggling to find a nominee for the Federal Reserve board with community banking experience, delaying plans to fill two other Fed vacancies, including a key regulatory post.

The problem: They can't find somebody willing to take the job.

Ethics rules require Fed governors and their immediate family members to divest themselves of holdings in any financial firms to avoid potential conflicts of interest. But many of the country's small banks are privately held and run by third- or fourth-generation executives.

Since President Donald Trump took office, at least three community banker candidates who had been recommended for the job either bowed out or declined to be considered over concerns about selling their stakes in their banks, according to people familiar with the matter.

This reluctance has held up the administration's plans to submit nominees for all three Fed board openings together to the Senate for confirmation. It could delay the community banker nomination into the fall, the people said.

The divestiture requirement is "an impediment to the administration finding a community banker, unless they find a retired banker who's already divested their interests," said Camden Fine, the chief executive of the Independent Community Bankers of America.

The problem isn't a new one -- the Obama administration also had trouble finding a community banker willing to be considered for the position -- but it has broader implications for the Trump administration's regulatory agenda.

Mr. Trump has three vacancies to fill on the seven-member Fed board. He also can nominate any board member to serve as vice chairman for supervision, a role created by the 2010 Dodd-Frank law but never formally filled during the Obama administration.

Without a vice chairman for supervision, the Trump administration is missing a key player to carry out its plans for overhauling financial regulations, including rolling back portions of Dodd-Frank.

White House spokeswoman Natalie Strom said in a statement, "The President takes the responsibility of nominating individuals to the Federal Reserve board very seriously, as whoever he chooses will have a major impact on the future of U.S. economic policy. We are in the process of reviewing a wide range of incredibly qualified candidates for all the open positions on the board and will announce the President's selections at the appropriate time."

As reported in April, Mr. Trump is expected to nominate Randal Quarles, a top Treasury Department official in the George W. Bush administration, to the regulatory post. He also is considering former Richmond Fed economist Marvin Goodfriend for another board slot.

The quest for a candidate with small-bank experience is part strategy, and part necessity.

Community bankers generally enjoy broad support on Capitol Hill. Packaging the nomination of a small-bank candidate with two other Fed nominees could make it easier for all three to win Senate approval, though the administration could choose to move ahead with two nominees.

Congress amended the Federal Reserve Act two years ago to require that at least one Fed board member have community banking experience. The Obama administration sought out small bankers to meet the requirement, but encountered similar difficulties as Trump officials.

"Just the prospect of having to sell, divest myself and my family of my organization -- that does not support community banking into the future in my opinion," said Rebeca Romero Rainey, CEO of Centinel Bank in Taos, N.M., who had been under consideration for a Fed seat during the Obama administration.

President Barack Obama nominated retired Bank of Hawaii CEO Allan Landon in early 2015, but the Senate never voted on his nomination, which expired when Mr. Obama left office.

Trump administration officials have been searching for possible Fed candidates since the weeks after the November election. During a March 9 meeting at the White House, Mr. Trump told a group of community bankers that he was very close to naming a person with small-bank experience to the Fed.

Once a regulatory nominee is selected, the process for security and ethics reviews takes about two months.

The administration could satisfy the community banker requirement with a state bank regulator. Several names of state bank regulators were submitted to the administration, according to sources, but it isn't clear they are being seriously considered for the job.

Some bankers approached for the seat said it was difficult to leave the private sector for what is likely a lower-paying government job with term limits, said people familiar with the matter. These people also noted a concern about being a political appointee, and how that would be perceived when they eventually return to the private sector.

Besides a person's financial holdings, another consideration related to the Fed job is a statutory requirement that not more than one member of the Fed's governing board come from the same Fed district. In the past, presidents have defined representation of a district somewhat loosely, but the White House likely can't ignore the requirement altogether.

Ryan Tracy and Peter Nicholas contributed to this article.

Write to Kate Davidson at kate.davidson@wsj.com and Rachel Witkowski at rachel.witkowski@wsj.com

(END) Dow Jones Newswires

June 27, 2017 05:30 ET (09:30 GMT)

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