Minneapolis Fed Appoints Kocherlakota as President
The Federal Reserve Bank of Minneapolis named Narayana Kocherlakota, an economics professor at the University of Minnesota with expertise in finance and banking, to replace former chief Gary Stern.
Kocherlakota, 45, takes office on Oct. 8 and is a consultant to the Minneapolis Fed, bank spokeswoman Patti Lorenzen said today. He is a former chair of the university’s economics department who has researched the effects of excessive risk-taking on asset prices, and was an economist at the Minneapolis Fed from 1996 to 1998.
Kocherlakota joins the central bank as policy makers seek to strengthen a recovery from the deepest U.S. recession since the Great Depression, and from a crisis that led to $1.62 trillion of bank writedowns and losses worldwide. Under Stern, the Minneapolis Fed had warned about the risks posed by financial institutions deemed “too big to fail.”
“Continuing the research and policy developments on the implications of ‘Too Big to Fail,’ and how we avoid the type of financial crisis that we just faced, is clearly going to be an important role” for Kocherlakota, Minneapolis Fed Research Director Art Rolnick said in a telephone interview.
Comparison With Stern
The question of whether the new president sides with Stern’s view that the Fed should do more to prevent asset bubbles is an “open” one, Rolnick said.
Kocherlakota earned his doctorate in economics from the University of Chicago in 1987 on the topic of pricing financial assets, and he entered Princeton University as an undergraduate at age 15, according to the bank. He’s published more than 30 articles, including a 1998 paper in the Journal of Monetary Economics called “The Effects of Moral Hazard on Asset Prices When Financial Markets Are Complete.”
“He is a surprise choice given his primary background is from the academic world,” said Sung Won Sohn, former chief economist for Wells Fargo & Co. who spent 31 years in Minneapolis. “Given his academic and Federal Reserve experience, he should be able to make a significant contribution.”
The new regional bank chief has taught at Stanford University, the University of Iowa and Northwestern University, according to a resume posted on the University of Minnesota’s Web site.
District Banks
The Fed has 12 district banks across the U.S. that supervise lenders and gather information on their regional economies. The presidents of four of the banks sit on the interest-rate setting Open Market Committee on a rotating basis, while the New York Fed chief has a permanent slot. Kocherlakota won’t vote on interest rates until 2011.
President Barack Obama’s plan to revamp U.S. bank regulation doesn’t fix the problem of institutions deemed “too big to fail,” leaving the financial system vulnerable to “serious instability,” Stern said in his last speech on July 9.
Stern left the bank on Aug. 31 and was replaced on an interim basis by James Lyon, the bank’s chief operating officer.
Filed under: business by Guru