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Larry Summers' Citigroup Problem
Could a possible conflict of interest derail the former Treasury secretary's appointment to run the Federal Reserve?
| Thu Sep. 12, 2013
Neither the White House nor a spokesman for Summers would comment for this story.
Summers' potential conflict of interest wouldn't incapacitate the Fed. The six other governors on the Federal Reserve board would still be able to vote to approve regulations. And Obama's ethics rules wouldn't block Summers, who is a former director of Obama's National Economic Council, from having a say on broader regulations mandated by the 2010 Dodd-Frank financial reform law that affect the biggest banks, including Citi. This would include the Volcker rule, which is supposed to limit high-risk trading by commercial banks.
But it's difficult to see how working "on a rule that affects only Citi and its largest competitors" wouldn't constitute a potential conflict of interest for Summers, says Marcus Stanley, policy director at the advocacy group Americans for Financial Reform. Michael Greenberger, an expert on financial markets and professor at the University of Maryland school of law, agrees: "Whatever he does for everybody, he does for Citigroup."
"Even if there's not a formal conflict," Greenberger adds, "there is an appearance of conflict."
Citi isn't the only Wall Street entity that has hired Summers. He also has done consulting work for a number of smaller financial firms, including the hedge fund D.E. Shaw and the venture capital firm Andreessen Horowitz. If he gets the job, he'd have to step aside if they have business before the Fed. (Summer has also made money giving speeches at top financial firms, including JPMorgan Chase, Merrill Lynch, and Goldman Sachs, but speechifying is not considered employment under Obama's ethics rules.)
Yellen, the other main contender for Fed chair and the underdog in this race, has no Wall Street hang-ups. She has spent the past 20 years at the Fed.
Holman says Summers' potential conflicts of interest should trouble the White House. "You'd expect that if he represents a behemoth and has to recuse himself so frequently, that should be a factor in considering not appointing him." But Sanford Weill, the architect of the merger that created Citigroup and its chairman until 2006, is not worried. On Tuesday, he noted that that he has "unbelievable confidence" in Summers' ability to do the job.
Summers' potential conflict of interest wouldn't incapacitate the Fed. The six other governors on the Federal Reserve board would still be able to vote to approve regulations. And Obama's ethics rules wouldn't block Summers, who is a former director of Obama's National Economic Council, from having a say on broader regulations mandated by the 2010 Dodd-Frank financial reform law that affect the biggest banks, including Citi. This would include the Volcker rule, which is supposed to limit high-risk trading by commercial banks.
But it's difficult to see how working "on a rule that affects only Citi and its largest competitors" wouldn't constitute a potential conflict of interest for Summers, says Marcus Stanley, policy director at the advocacy group Americans for Financial Reform. Michael Greenberger, an expert on financial markets and professor at the University of Maryland school of law, agrees: "Whatever he does for everybody, he does for Citigroup."
"Even if there's not a formal conflict," Greenberger adds, "there is an appearance of conflict."
Citi isn't the only Wall Street entity that has hired Summers. He also has done consulting work for a number of smaller financial firms, including the hedge fund D.E. Shaw and the venture capital firm Andreessen Horowitz. If he gets the job, he'd have to step aside if they have business before the Fed. (Summer has also made money giving speeches at top financial firms, including JPMorgan Chase, Merrill Lynch, and Goldman Sachs, but speechifying is not considered employment under Obama's ethics rules.)
Yellen, the other main contender for Fed chair and the underdog in this race, has no Wall Street hang-ups. She has spent the past 20 years at the Fed.
Holman says Summers' potential conflicts of interest should trouble the White House. "You'd expect that if he represents a behemoth and has to recuse himself so frequently, that should be a factor in considering not appointing him." But Sanford Weill, the architect of the merger that created Citigroup and its chairman until 2006, is not worried. On Tuesday, he noted that that he has "unbelievable confidence" in Summers' ability to do the job.
