Kevin Warsh, a Federal Reserve governor and key lieutenant to Chairman Ben S. Bernanke during the financial crisis, is leaving the central bank at the end of March, giving President Obama a chance to continue reshaping the Fed.
Warsh’s departure will leave the governing board of the powerful central bank almost entirely in the hands of Obama appointees. Obama will have named six of seven governors once the Senate confirms nominee Peter Diamond to a vacant slot and Warsh is replaced.
Warsh has been a skeptic of Bernanke’s policy to try to boost the economy by buying hundreds of billions of dollars’ worth of Treasury bonds, and Fed watchers think it likely that a new Obama appointee would be more supportive of the strategy. But given the sluggishness of the Senate confirmation process, analysts were not anticipating any sea change in Fed monetary policy.
The departure will also leave the board of governors without any specialists in financial markets. Warsh, who was appointed by President George W. Bush in 2006, has been a particularly close adviser to Bernanke on financial market issues. Warsh has often spoken with Wall Street executives and contacts in global markets to gather information, and he has served as an emissary to the financial world for the more academically oriented Bernanke.
Warsh was the youngest person ever to serve as a Fed governor when he was named at age 35.
Now 40, he has told friends he will seek private-sector work outside of finance, though he has no job lined up. Although his experience before joining the Bush White House staff in 2002 was as an investment banker at Morgan Stanley, he has said he is looking to work as an executive away from Wall Street. Ethics rules bar him from being an employee of a bank for two years after leaving office, though the rules leave room for work elsewhere in the financial industry.
Warsh was one of a small number of Bernanke’s closest collaborators during the most intense phase of the 2007-09 financial crisis. Often working all night, he helped decide which financial companies to bail out and, more broadly, how to keep the entire financial system from unraveling.
“His intimate knowledge of financial markets and institutions proved invaluable during the recent crisis,” Bernanke said in a statement. “I deeply appreciate his insights and wise counsel and, most especially, his fortitude and friendship during the difficult days, nights and weekends of the crisis.”
Warsh also used familiarity with Republican party politics to help Bernanke navigate a challenging political environment for the Fed. In addition, Warsh has overseen many administrative functions of the central bank.
While he has perhaps been Bernanke’s closest adviser on financial market issues, the two men have been less closely aligned on questions of monetary policy. Warsh was a reluctant supporter of Bernanke’s plan to try to strengthen the economy by buying $600 billion in Treasury bonds, announced in November. He voted in favor of the measure. But he explained in a speech shortly afterward that he had no great confidence that the action would help the economy.
“I am less optimistic than some that additional asset purchases will have significant, durable benefits for the real economy,” said Warsh in a Nov. 8 speech. “There are significant risks that bear careful monitoring.”