Coverage: New York Fed president Dudley set to retire

New York Federal Reserve Bank President William Dudley, a key figure in the unprecedented government response to the financial crisis, is expected to announce his retirement as soon as next week.

Steve Liesman of CNBC had the news:

Dudley, who has has headed the bank since 2009, will likely retire sometime in the spring or summer of 2018 when his replacement is found and approved, sources told CNBC. His term ends in January 2019. A search committee has already been formed.

Dudley, who will be 65 next year, took the helm of the New York Fed when the banking system was still in the throes of the worst financial crisis of the post-war era.

He previously had headed the New York Fed’s markets group, a critical job that oversees the trades and market operations required to set the Federal Funds Rate. In both positions, Dudley was a principal player in Fed decisions concerning the demise of Lehman Brothers, AIG and Bear Stearns, along with emergency measures taken by the central bank to stanch a meltdown in the financial system.

Largely under Dudley, the NY Fed was responsible for accumulating the trillions in assets the Fed purchased as part of the quantitative easing program, bringing its balance sheet up to $4.5 trillion. It is now responsible for the market operations underway to reduce the balance sheet.

Jonathan Spicer of Reuters reported that Dudley previously worked at Goldman Sachs:

Dudley, a former partner at Goldman Sachs Group Inc, ran the New York Fed’s markets group during the depths of the financial crisis in late 2008 before taking the helm there in January 2009 for a 10-year term. He has since steered a cautious and dovish path as vice chair of the Fed’s policy-setting committee, and as a close ally of Fed Chair Janet Yellen and her predecessor Ben Bernanke.

Dudley’s departure next year would likely come after U.S. President Donald Trump’s nominee for chair, Fed Governor Jerome Powell, succeeds Yellen in February. Trump has three other seats to fill on the Fed’s powerful Board of Governors, and a fourth if Yellen departs when her term as chair ends, giving the White House an unusually wide window to reshape the central bank.

Unlike governors, presidents of the Fed’s 12 district banks are chosen by local boards, though they are approved by the Fed Board in Washington.

Dudley, as head of the New York headquarters, oversaw the Fed’s accumulation of some $3.5 trillion in bonds in response to the crisis, as well as its decision to start shedding assets last month. His policy recommendations have proven cognizant of how financial markets were likely to react.

Michael S. Derby of The Wall Street Journal reported that Dudley’s regulatory record is mixed:

Mr. Dudley’s record on the regulatory front was more mixed. The New York Fed saw its role one of the most powerful regulators diminished when then-governor Daniel Tarullo consolidated much of those activities under the Fed’s Washington-based board of governors.

Mr. Tarullo said in 2015 interview that “it was obvious that a lot in the U.S. regulatory system had not worked particularly well before the crisis” and that a rethink was necessary.

The New York Fed faced further trouble when, in 2013, a staff bank examiner claimed she had been instructed to go easy in her oversight of Goldman Sachs and was fired when she refused. While her claims were rejected by a court, she released secretly recorded conversations about the matter that became a public-relations problem for the New York Fed.

“I completely stand behind the integrity and work of our supervision staff at the New York Fed,” Mr. Dudley said in 2014. He added “We are going to keep striving to improve, but I don’t think anyone should question our motives or what we are trying to accomplish.”