Critics say that after those policies helped lead to the 2008 crisis, Summers apparently did not learn the lesson. He initially opposed, for example, a proposal by former Fed chairman Paul Volcker to require banks to split off their trading arms. He also faced criticism for policies that seemed to value bank profitability over helping struggling homeowners.
“He seemed to me to carry the deregulatory notions inside the White House,” said Merkley, the Oregon senator critical of Summers who helped turn the Volcker proposal into law. After leaving the White House, Summers’s decision to work as a consultant for financial-sector clients such as Citigroup and the hedge fund company D.E. Shaw have added to that image.
But Obama is unlikely to harbor such concerns, according to people close to both men. They say the two have bonded over ways the financial system can better serve average Americans.
In early deliberations over the financial regulatory plan known as Dodd-Frank, Summers captured the president’s imagination with a colorful analogy that emphasized the need for a new agency to protect consumer interests, saying banking regulators could not be trusted to do the job, according to participants in the meeting.
“You wouldn’t have the FAA be in charge of ensuring the profitability of the airlines,” Summers said. “You wouldn’t have the FDA be in charge of protecting the financial health of pharmaceutical companies.”
The Consumer Financial Protection Bureau became a linchpin of the president’s plan.
Summers was also a major advocate of new requirements that banks hold more emergency funds in reserve — a position he had been pushing years before the crisis. Such higher capital requirements can restrain excessive speculation and bubbles — which Obama has said must be an important goal of the next Fed chairman.
People familiar with Summers’s thinking say that maintaining adequate capital would be a key element of his approach to bank oversight as Fed chairman.
Less appreciated, associates say, is how he would encourage banks and other financial companies to serve lower- and middle-income workers by more tightly regulating fees and by ensuring that banks are lending to needy communities and deserving borrowers.
“The president has a deep, abiding interest in making sure the financial system works for everyone, and I think Larry shares that basic conviction,” said Michael Barr, a former senior Treasury Department official who is an expert on the impact of financial regulation on low-income Americans. “Larry is deeply concerned with the plight of low- and moderate-income households and would work creatively using the tools available to him to try to make the financial system work better for them.”