Timothy F. Geithner’s replacement by Jack Lew as Treasury secretary will end a period of unusually strong ties between the department and the Federal Reserve. For the Fed, the result may be less insulation from critics, yet greater influence in financial market regulation.
Geithner worked closely with Fed Chairman Ben S. Bernanke in fighting the financial crisis and cleaning up its aftermath, first as head of the Federal Reserve Bank of New York and then as Treasury secretary. Going through the “searing experience of the panic together” created a bond between the two that “you get from that kind of combat,” Geithner said in a 2010 interview.
“You’ve never had a secretary with the type of credentials” that Geithner had, including his relationships and knowledge as a former Fed insider, said Edwin M. Truman, who has worked at both the central bank and under Geithner at the Treasury. “The only thing that comes close” was when Paul Volcker headed the Fed after being a senior Treasury official.
President Barack Obama will announce at 1:30 p.m. in Washington that he plans to name Lew, his White House chief of staff, to replace Geithner at the Treasury, according to a person familiar with the process.
Geithner’s departure means the central bank will lose a strong ally inside the executive branch who helped protect the Fed from efforts by both Republican and Democratic lawmakers to rein in its power.
Little Sympathy
While Lew would have no more sympathy than Geithner for assaults on the Fed, “I don’t expect him to be as defensive of the Fed and as quick to attack those things as Geithner would be,” said Mark Calabria, a former aide at the Senate Banking Committee to Alabama Republican Richard Shelby. Calabria is now director of financial regulation studies at the Cato Institute in Washington.
Lew, 57, also lacks the experience that the 51-year-old Geithner had with international financial markets and regulation, leaving an opening for others inside the government, including at the Fed, to gain more sway in that area.
Fed Governor Daniel Tarullo may be one who does that, especially in meetings of the Financial Stability Oversight Council, which brings together regulators across the government and is headed by the Treasury secretary.
“With Geithner’s departure, Tarullo is now one of the more dominant personalities in the room at FSOC meetings, allowing him to leave a larger imprint on regulations,” said Brandon Barford, another former Shelby aide who is now a vice president at ACG Analytics Inc., a Washington research and consulting firm.