William Dudley Was Key to Fed's Crisis Response

By Michael S. Derby Features Dow Jones Newswires

New York Fed President William Dudley will leave his post next year having played a central role helping the central bank respond to the financial crisis, while drawing fire for not doing more to prevent another one.

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He served as part of the Fed's inner circle of firefighters who crafted unprecedented, experimental monetary policies to stabilize markets and boost the economy during a severe economic downturn and initially sluggish recovery.

He designed and launched plans to reverse those policies. And now, as he prepares to announce he will retire next year, the economy is growing at a robust clip, unemployment is at a 17-year low and markets are buoyant.

He will step down, however, having been dogged by criticism that the New York Fed, which supervises some of the country's biggest financial institutions, was a lax regulator before the crisis. He rejected the criticism but oversaw efforts seeking to improve its performance afterward.

The New York Fed didn't respond to requests for comment Sunday.

Mr. Dudley, a former Goldman Sachs chief economist, joined the New York Fed in 2007 in a senior staff position overseeing the institution's implementation of monetary policy, including its early responses to the crisis.

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When then-New York Fed President Timothy Geithner left in early 2009 to become Treasury secretary, Mr. Dudley succeeded him in the top job, becoming a key member of then-Fed chairman Ben Bernanke's team of top decision makers.

Mr. Dudley was a strong supporter of holding short-term rates near zero for seven years to bolster the economy after the crisis, through a severe downturn and often sluggish recovery. He also advocated the Fed's multiple rounds of bond buying aimed at lowering long-term interest rates to stimulate the economy. Mr. Dudley had a hand designing and implementing virtually all of the Fed's efforts to restore the economy and financial system to health.

The policy maker then pushed for slowly raising short-term rates beginning in late 2015, and favors lifting rates gradually higher despite recent weak inflation. His position partly reflects his belief that financial conditions play an integral role in how the economy performs.

Boston College economics professor Peter Ireland said Mr. Dudley "may not be remembered for one specific thing or event." But "he's been an important guy behind the scenes" for all the big issues facing the Fed over the past decade or so, Mr. Ireland said.

Mr. Dudley has also drawn praise for working effectively with his colleagues, even when they didn't agree on the right path.

Former Philadelphia Fed president Charles Plosser, who retired in 2015, was a frequent critic of the central bank's easy-money policies, but he held Mr. Dudley in high regard.

Mr. Dudley has been "a strong contributor to and believer in the Fed, and he took very seriously the goals and objectives the Fed had, and always wanted to do the right thing," Mr. Plosser said.

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."

The New York Fed nevertheless continued to be dogged by criticism it had fallen short, leading Fed Chairwoman Janet Yellen to offer an unusual defense in December 2014. Mr. Dudley has "done a fine job in running the New York Fed and I want to be very clear that I have great confidence in him."

Mr. Dudley also ruffled more than few feathers with his criticism of a Wall Street culture that had helped foster the financial crisis. "There is evidence of deep-seated cultural and ethical failures at many large financial institutions," Mr. Dudley said in a 2013 speech.

But Mr. Dudley remained a skeptic of breaking up the largest banks, and instead argued in favor requiring big financial institutions to hold more capital, among other changes, to make them better prepared to survive unexpected shocks.

Write to Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

November 05, 2017 19:21 ET (00:21 GMT)