Fed’s Kroszner Resigns, Heads Back to School

Federal Reserve Board governor Randall Kroszner submitted his resignation Monday. “The challenges and issues we have confronted have been unprecedented,” he said in his resignation letter to President George W. Bush. “I am particularly pleased with our accomplishments in monetary policy, innovative liquidity facilities, banking and financial regulatory policy, and in strengthening consumer protection.” He will return to a professorship position at the Booth School of Business at the University of Chicago after leaving Jan. 21, according to his letter. A vocal authority on mortgage within the Fed, Kroszner has been a member of the Board of Governors of the Federal Reserve System since 2006. In 2008, he spoke out often on the unraveling of the subprime market and the need for “restoring confidence in our mortgage system.” Back in June 2008, he was urging banks and financial institutions to raise capital months before Treasury Department secretary Henry Paulson began rallying support for a $700 billion asset relief program that would eventually fulfill this exact role. “The difficult conditions in the mortgage securitization markets, of course, put strains on the housing market itself,” Kroszner said. “Recovery in the mortgage markets themselves is also likely to be tied to recovery in the housing markets…. I expect housing markets to recover only gradually as demand rebounds and excess inventories are worked off.” A month earlier, he’d been saying that recovery in the mortgage markets would take some time to materialize, although he said it would eventually materialize. Characterizing market recovery as “a gradual process that requires both market and regulatory discipline,” Krozner said that better information and transparency would be needed to restore investor confidence and bring liquidity back to a mortgage market that had been battered, and in some sectors, even left for dead. Kroszner’s reappointment — urged by President Bush — was blocked in 2007 by Chris Dodd, D-Conn. President-elect Barack Obama’s pick for replacement at the central bank, Daniel Tarullo, will take Kroszner’s position. Write to Diana Golobay at [email protected].