Former Fed governor: Sarah Bloom Raskin is a 'really good choice' for top banking regulator

Former Chair of Wells Fargo and former Fed Governor Betsy Duke joins Yahoo Finance Live’s Brian Cheung to discuss President Biden’s Fed official nominee Sarah Bloom Raskin, the significance of the vice chair of supervision role, and the development of the economy.

Video Transcript

- Well, last night, the Biden administration making the news that it was going to be rounding out its Fed nominees with names to fill the last three remaining vacancies at the central bank's board. Lisa Cook and Phillip Jefferson for governor roles, and Sarah Bloom Raskin for vice chair of supervision. We want to zoom in a little bit more on that news now with someone who was inside the Eccles building itself-- former Fed governor Betsy Duke, also former chair of Wells Fargo, joins us now over the phone.

Betsy, it's great to have you on the program this morning. You were at the Fed from 2008 to 2013, and you worked with Sarah Bloom Raskin for some of that time. Just wondering if you could have any sort of quick reaction to the news. What do you think she brings to the Fed, especially in that very important vice chair of supervision role?

BETSY DUKE: Thanks, Brian. Yeah, I'm actually really glad to see that they're going to round out the full complement of Fed governors, because the work with the Fed works best when you have full complement of seven governors, and I think there are three outstanding nominees. Sarah, in particular, I did work with most closely on taking all of the capital rules-- the Basel capital rules-- as well as implementing Dodd-Frank. And not only implementing them, but paying attention to the impact that they would have on smaller institutions, and trying to simplify those rules so that they didn't present an undue burden on the small banks. She's a solid regulator and, I think, a really good choice.

- Now, what is the significance of the vice chair of supervision role specifically? Because this is a role that there's only ever been one person sitting in. It was created in 2010. So Sarah Bloom Raskin having been there as a Fed governor might be taking on some slightly different responsibilities in this specific role, especially with some Republicans perhaps saying they're concerned about whether or not she's going to be too hard on banks. What do you see as her approach to regulation, if confirmed by the Senate?

BETSY DUKE: Well, the vice chair for supervision was created in Dodd-Frank, and the purpose was to really elevate the supervision role that the Fed has. So it's a difficult role, because you have a responsibility for not only supervising individual banks, but also keeping an eye on the overall financial system and making sure that it is solid and safe and available to support the economy. So it is a tough role, and it requires understanding banking and the interaction of the financial system-- the importance of the financial system.

The regulatory regime, or framework, that the Fed has now started in the crisis when I was there-- particularly with the stress test. I was there for the first stress test. And the stress tests are actually, I think, an excellent tool, because they are a forward looking view of, given individual portfolios with banks, how they might perform in different risk scenarios.

And the impetus for that risk can be different. The most recent stress tests focused on pandemic risk, and I think future ones will probably focus on others, such as cyber or climate or anything of that nature. But the impact of the financial statement is generally the same. It's either going to be an impact on asset values or an impact on operations of the company. So those are then incorporated into the financials of the company, and you can actually test the resilience of the banking system, which I think worked really well, if you look at how the financial system came through the pandemic. I think that's a testament to the resilience of this framework.

- Betsy, it's Julie here. I want to ask about the composition of these picks in terms of gender, in terms of ethnicity and color, because this is obviously notable, that Lisa Cook could be the first Black woman to serve as Fed governor. We're talking about women potentially in that vice chair of supervision role and in the vice chair role. How important is it, as the Fed has emphasized, now, to have a diverse board of governors in order to be setting policy?

BETSY DUKE: It's always been really important to have diverse voices around the table, and I think these picks are notable for that reason-- not just in that they bring a different perspective, but also that future economists, future Fed governors, people who are maybe in high school now, or just getting ready to go to college, will look at this and say, that's a possible career for me. And the economics profession, in particular, has been not very diverse for quite some time.

As to the women, I think I was only the seventh woman to serve on the Fed board, but while I was there, we did-- at one point, the women outnumbered the men, because there were two vacancies, and Janet Yellen and Sarah and I were there outnumbering the two men. So I think it'll be really good for Fed deliberations, and it's a positive development.

- And Betsy, I want to ask about the environment on the monetary policy side of things that these new nominees, if confirmed, would be facing. Obviously, there's a lot of concern about inflation, and now that it's official from the White House, President Biden just releasing a statement saying that, quote "We're at a moment of historic economic progress." But again, probably also, arguably, a lot of peril, because of the monetary situation we find ourselves in. What do you think is going to be the biggest issue? How do you see this slate of nominees approaching the economic recovery, in the uniqueness of it that we're facing now?

BETSY DUKE: Well, the good thing is all of them are trained economists, and all of them have worked in the Fed system before, I think. The two governor nominees have both worked in Federal Reserve banks. Sarah, of course, has been at the Fed before, and she has an undergraduate degree in economics. So it's really about watching the development of the economy-- looking at how it might develop in the future.

The staff at the Fed is an incredible strength. You have some really brilliant minds there for helping the governors to shape policy and to think about it. But in addition to that, it really requires some real world experience. So in terms of bringing diversity, I was not an economist. I was a banker, and some of the best insights I got were from people who were just really on Main Street telling me what they saw.

- Right. And even Jay Powell himself, not a PhD economist. But a lot of color to digest there, but Betsy Duke, former chair of Wells Fargo and former Fed governor helping us to break down that news. Thanks again for stopping by Yahoo Finance this morning.