Who will Succeed Federal Reserve Chairman Alan Greenspan?
By Donald A. Stukes MBA, CPA

Alan Greenspan became Fed Chairman on August 11, 1987, when he was picked by President Ronald Reagan to succeed Paul Volcker. Mr.Greenspan is in his fifth four-year term as Chairman and has let it be known that he does not intend to serve past the end of his current term. As much focus is on the confirmation of a new Associate Judge on the U.S. Supreme Court, similar attention should be focused on the list of candidates teed up to be the new Chairman of the Federal Reserve Board.

A brief review of the scope and power of the Federal Reserve Board is required to understand the magnitude of the selection of the new Fed Chairman. The Board sets reserve requirements and shares the responsibility with the Reserve Bank for discount rate policy. These two functions plus open market operations constitute the monetary policy tools of the Federal Reserve. In addition to monetary policy responsibilities, the Federal Reserve has regulatory and supervisory responsibilities over banks that are members of the System, bank holding companies, international banking facilities in the U.S., and U.S. activities of foreign-owned banks. The Board plays a key role in assuring the smooth functioning and continued development of the nation’s vast payments system. Another area of Board responsibility is the development and administration of regulations that implement major federal laws governing consumer credit such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act and the Truth in Savings Act.

Mr. Greenspan’s term expires on January 31, 2006 and he wants to step-down on schedule. Since the Senate will adjourn for the year in December and will not reconvene until the beginning of January, the process will now take an expedited path.

The list of potential replacements being talked about in Washington and Wall Street are basically four candidates: Martin Feldstein of Harvard University; R. Glenn Hubbard, a former advisor to Mr. Bush; Ben S. Bernanke, Chairman of the White House Council of Economic Advisors, and Robert Rubin, now Chairman of the executive Committee at Citicorp.

Former Treasury Secretary Robert Rubin would be considered the front runner if he were Republican and had not strongly criticized Mr. Bush’s budget deficits but since Bush is focused on Republican candidate the talk around town is that Martin Feldstein is the front runner. It is widely known that Mr. Bush desires to pick a candidate with whom he has some personal working relationship with, as he did with Ms. Miers. Mr. Feldstein is considered the front runner because he has a distinguished teaching career at Harvard and served from 1982 to 1984 as Chairman of the CEA, a post that Mr. Greenspan used as a stepping stone to the Fed job. Many believe that Mr. Greenspan will have meaningful influence over the selection process sine he has a close working relationship with Vice President Cheney, going back to the Ford administration. 

Ben Bernanke’s name has been on the rise in recent weeks. Mr. Bernanke was a Fed Board Governor for several terms until coming to the White House in August 2002. Many believe because of his increased interaction with Mr. Bush in his position as Chairman of the White House Counsel of Economic Advisors, which may give him the inside track.  Many from Wall Street say he would be well received by investors. Martin Feldstein remains at the top of the list but his connections as a Director AIG is of some concern to those in the White House. His directorship was under the tenure of Maurice “Ace” Greenberg, the former Chairman and CEO, who was ousted subsequent to a SEC investigation that is still on-going.

As in the past Mr. Bush’s decision will be done with much reliance on is kitchen cabinet comprised of Vice President Dick Cheney, Andrews Card, Karl Rove (if still a Cabinet member after the White House leak inquiry concludes) and Joshua Bolten, the White House Budget Director.

The issues are pervasive related to the choice to be the new Fed Chairman. In the past, the Fed Chairman has remained in that position for multiple terms and therefore imparts his economic philosophy for a long tenure. Mr. Bush wants someone who provides reassurance to the nation’s financial markets and Wall Street power brokers want someone who understands capital markets as well as monetary policy. The appointment of the next Fed Chairman is as important as his nomination for Justice to the Supreme Court. The Fed Chairman is the key decision maker over the nation’s money supply and its ability to set short-term rates. This directly impacts the nation’s rate of economic growth, its pace of job creation and its rate of inflation.

This nation thrives on its systems for banking and capital accumulation and there is no other individual that affects this process greater then the Fed Chairman. Many will closely monitor the selection of the new Fed Chairman. Just watch the stock ticker on the day the Fed Chairman is selected and you will get an immediate read from Wall Street and money managers on their view of this selection.

Donald A. Stukes is a principal in White Plains, New York-based Asset Solutions International, Inc., an investment banking boutique that focuses on corporate restructuring and mergers & acquisitions.


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