Trump Picks Expert on Regulation for Federal Reserve Board

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WASHINGTON — President Trump nominated Nellie Liang, a longtime Federal Reserve staff member who is an expert on financial regulation, on Wednesday to join the Fed’s board of governors.

Ms. Liang, 60, played a key role in the Fed’s efforts to tighten oversight of the financial system after the 2008 crisis, including the creation of a new Fed department focused on monitoring financial stability.

She is well known and well regarded in the close-knit world of central banking, and Mr. Trump’s decision was applauded by her peers. Carl R. Tannenbaum, the chief economist at Northern Trust, called the nomination an “inspired choice.”

Ms. Liang, a registered Democrat, would bring to the Fed’s board deep experience on questions of regulation and the stability of the financial system, an area that the Fed chairman, Jerome H. Powell, has described as increasingly important. Her views, however, appear to conflict with those of Mr. Trump, who has called for the Fed to reduce its postcrisis strictures on the banks.

In a presentation last week at the Brookings Institution, Ms. Liang reiterated her support for tougher postcrisis regulations. “The regulatory and supervisory structure needs to be kept up-to-date with changes in the financial system, and to make it more resilient to a wider range of shocks,” she said.

Krishna Guha, the head of the central bank strategy team at Evercore ISI, said Ms. Liang was likely to be open to efforts to streamline and perhaps to prune postcrisis safeguards. He added, however, that “she is unlikely to favor any wholesale pullback from the postcrisis regime.”

The Fed’s board oversees the central bank’s work as a financial regulator and, together with the presidents of the Fed’s 12 regional reserve banks, it also charts the course of monetary policy.

Before the crisis, those jobs were viewed as relatively distinct, at least in good times. Experts on monetary policy generally agreed that the Fed and other central banks should raise and lower interest rates for the sole purpose of controlling the pace of inflation. Since the crisis, however, some experts, including Ms. Liang, have argued that central banks should pay attention to financial markets, too. If financial speculation is rising to unsustainable heights, it might make sense to raise interest rates.

Officials are also wrestling with the role of regulation in popping asset bubbles. The Fed, for example, now has the power to constrain bank borrowing if the economy appears to be overheating by requiring the banks to raise a larger share of their funding in the form of capital.

Some Fed officials have argued in recent months that the Fed should impose such a requirement.

Ms. Liang, who must be confirmed by the Senate, would become the first Asian-American to serve on the Fed’s board, and just the 10th woman. She has spent almost her entire professional life at the Fed. She graduated from the University of Notre Dame in 1979, then completed a doctorate at the University of Maryland in 1986. That same year, she joined the Fed’s staff in Washington as a research economist.

She played a critical role in the “stress tests” of major banks in 2009.

The next year, Ms. Liang was chosen by the Fed chairman at the time, Ben S. Bernanke, to lead a new division of the central bank focused on monitoring financial stability. She served in that role from 2010 until 2017, when she left for a job at the Brookings Institution.

Mr. Trump has now made nominations for all three of the open seats on the Fed’s seven-member board. Mr. Trump previously nominated Michelle Bowman, the chief banking regulator for the State of Kansas, and Marvin Goodfriend, a conservative professor of economics at Carnegie Mellon University.

Ms. Bowman and Mr. Goodfriend are awaiting Senate confirmation.

Richard Clarida was sworn in on Monday as the Fed’s vice chairman.

If Mr. Trump’s remaining nominees are confirmed, it could be the first time since 2013 that the Fed would operate with a full complement of governors.

Follow Binyamin Appelbaum on Twitter: @bcappelbaum.

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