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Summers Withdraws Name from Fed Consideration

By Greg Richter   |   Sunday, 15 Sep 2013 05:09 PM

Lawrence Summers, seen as President Barack Obama's first choice to replace Ben Bernake as chairman of the Federal Reserve, has taken his name out of the running, according to The Wall Street Journal.

Summers, who served as treasury secretary under President Bill Clinton and as chairman of Obama's National Economic Council, called Obama Sunday to inform him of his decision.

"I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the Administration or, ultimately, the interests of the nation's ongoing economic recovery," Summers wrote in a letter that followed Sunday's phone call, the Journal reported.

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Summers' nomination has been opposed by liberals and women's groups over statements he has made while serving as president of Harvard University. He also has been opposed by Democratic members of the Senate Banking Committee who see him as a symbol of the failures of financial regulation.

On accepting Summers' withdrawal, Obama described him as "a critical member of my team as we faced down the worst economic crisis since the Great Depression, and it was in no small part because of his expertise, wisdom, and leadership that we wrestled the economy back to growth and made the kind of progress we are seeing today," the Journal reported.

With Summers out of the picture, the nomination to succeed Bernanke, who leaves the job at the end of the year, focuses on Fed Vice Chairwoman Janet Yellin and Donald Kohn, who is former vice chairman. Former Treasury Secretary Timothy Geithner's name has been floated for the position, but he has indicated he is not interested.

Twenty U.S. senators, including 19 Democrats and one independent, signed a letter of support for Yellen in July. If nominated and confirmed, she’d be the first woman to be chairman of the Fed. 

Montana Senator Jon Tester, a member of the Banking Committee, last week became the third Democrat to declare opposition to a Summers nomination, along with the one independent.

Senator Sherrod Brown, an Ohio Democrat who circulated the letter and is a member of the committee, said at the time that the letter wasn’t about Summers, “even though there is obviously a lot of opposition here to Summers.” 

Chris Rupkey, the chief financial economist for Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, predicted a continuation of Bernanke’s policies should Yellen succeed him.

“It tells you there will be no change in the leadership of the Fed and that the direction that it has taken under Bernanke is going to continue because his No. 2 is taking over,” Rupkey said. “If anything she is more pro-growth than Bernanke himself.”

“Summers was seen as the first choice, then Yellen, and everyone else is well down on the list of probabilities. There still could be some dark horse that emerges like Geithner, but otherwise it looks like Yellen,” Rupkey said, referring to former Treasury Secretary Timothy Geithner.

The potential Summers nomination was a hot-button issue for liberal groups for much of the past few months, most of whom raised concerns about his support of deregulatory measures for the banking industry during his time in President Bill Clinton’s administration.

The magnitude of that opposition increased last week, as the three Democrats -- all on the Senate Banking Committee -- declared their intention to oppose his nomination. 

The decision by Senators Jeff Merkley of Oregon, Sherrod Brown of Ohio, and Jon Tester of Montana, to publicly announce their opposition to the nomination, created a numbers problem for Summers on the panel, where Democrats hold a 12-10 edge. Republicans, none of whom have declared support for Summers openly, would be required to vote for the nomination for it clear the committee.

If Summers cleared the committee with Republican support, a Senate floor fight would likely follow, with lawmakers who have been critical of the Fed under Bernanke, such as Senator Rand Paul, a Kentucky Republican, and Senator Bernard Sanders, a Vermont independent, seen as willing to try and hold up the nomination.

Sanders, in a July 28 letter to Obama, called Summers one of the “chief architects of financial deregulation in the 1990s.”

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Behind the scenes, staff and lawmakers, even those that said they would support Summers, voiced concern in interviews about the intraparty fight a Summers nomination would cause. Democrats, who hold a majority in the Senate, face negotiations on the budget and an increase in the debt ceiling in the coming weeks.

Merkley, who signed the letter, said in a July interview that Summers didn’t seem to be a good fit at a time when Wall Street needs to be carefully overseen.

“If you nominate someone who is a life-committed deregulator to be in a regulatory position, and if you believe regulation is necessary to prevent fraud, abuse, manipulation and so forth, then there’s a lot of questions to be asked: Why is this person appropriate?” Merkley said.

Material from Bloomberg business news was used in this report.

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