USA:MISHKIN RENUNCIA A LA FED, BLOOMBERG

Mishkin to Leave Fed in August, Return to Columbia (Update3)

By Scott Lanman

May 28 (Bloomberg) -- Federal Reserve Governor Frederic Mishkin, a central-banking scholar and advocate of the longest run of interest-rate cuts since 2001, resigned to return to Columbia University.

Mishkin, 57, on a leave of absence from the New York school, will step down as of Aug. 31, the Fed said in a statement today, also releasing his letter of resignation to President George W. Bush.

The departure may create an unprecedented third vacancy on the seven-member Fed Board of Governors this year as the central bank tries to ease the credit crisis. The vacancies mean that a new U.S. president to be inaugurated in January may have an opportunity to influence monetary and regulatory policy by nominating new members to the board.

``He was a pretty important supporter of the move toward aggressive rate-cutting this year,'' said Michael Feroli, an economist at JPMorgan Chase & Co. in New York, who used to work at the Fed.

Senate Banking Committee Chairman Christopher Dodd, a Democrat from Connecticut, has already delayed a confirmation vote for three board nominees for more than a year. After gaining support from the committee, the nominations would go to the full Senate for a vote of final approval.

Duke, Klane

Bush asked the Senate last May to confirm to the board Elizabeth Duke, chief operating officer of Virginia-based TowneBank, Larry Klane, former president of global financial services at Capital One Financial Corp. and Randall Kroszner, a Fed governor whose term expired on Jan. 31. Kroszner has continued to serve while awaiting confirmation.

``It leaves the board in a challenging condition, with only four governors, one of which is unconfirmed,'' said Brian Sack, senior economist at Macroeconomic Advisers LLC in Washington and a former Fed research manager.

Democrats hope to win the White House in November, gaining power to change leadership at the central bank and federal agencies.

Bush may select a fourth nominee to fill Mishkin's seat. Should the Senate fail to approve a replacement or not allow Bush to appoint a temporary substitute, the Fed would have fewer than five governors in office for the first time since establishment of the bank's current structure in 1936.

Mishkin, who has been on an unpaid leave of absence from Columbia, his employer since 1983, joined the Fed in September 2006.

Barometer for Bernanke

Investors and economists view Mishkin's speeches as a barometer for Chairman Ben S. Bernanke's opinions and the direction of Fed policy. Two talks by Mishkin in September, for example, proved to be among the best predictors of the Fed's surprise half-point rate cut that month.

Mishkin presented a paper at the Kansas City Fed's annual symposium in Jackson Hole, Wyoming, saying the Fed can be more successful by lowering rates ``aggressively'' in response to a deep slump in home prices. In another speech he said the financial turmoil posed an ``important downside risk to economic activity'' beyond housing.

Most recently, on March 4, Mishkin said in a speech on the outlook for the economy that he saw ``significant'' risks to a forecast that already called for ``sluggish'' growth for 2008. The Fed on March 18 lowered its main interest rate by 0.75 percentage point.

Mishkin has voted with the Fed majority on every decision since taking office. While Bernanke has had unanimous support from the Board of Governors on all published votes, some presidents of the 12 district banks have dissented from decisions on interest rates.

Inflation Targeting

Mishkin has studied central banking for three decades and worked as the chief of research at the New York Fed from 1994 until 1997. His ties with Bernanke date to graduate school at the Massachusetts Institute of Technology in the 1970s. The two have collaborated on research to show the benefits of inflation targeting, or setting interest rates to achieve a numerical inflation objective.

The cigar-smoking grandson of Russian immigrants brought an air of informality to the Fed, joining researchers for dinner when they hosted visiting economists, seeking to boost give-and- take with staffers and peppering his talks with humor and anecdotes.

``He obviously had pretty high stature academically,'' Feroli said. At the same time, ``you still have quite a number of pretty strong academic stars that I think any central bank in the world would be happy to have,'' he said.

Pay Cut

While Mishkin's term doesn't expire until 2014, few governors remain at the Fed that long. He makes asides in speeches about being apart from his wife in New York, and like most recent Fed governors, Mishkin took a pay cut to join the central bank. His salary is $172,200 this year, compared with $300,000 at Columbia in 2005.

Mishkin also earned $434,000 in royalties from Pearson Plc in the 18 months ending June 2007, according to a financial- disclosure filing last year. Pearson publishes Mishkin's best- selling textbook, ``The Economics of Money, Banking and Financial Markets,'' now in its eighth edition.

In the same filing, Mishkin said he received a $75,000 ``advance and grant'' from Pearson for a not-yet-written textbook.

A quorum of four governors may complicate the Fed's ability to function during a crisis.

Emergency decisions to authorize lending to nonbanks require the unanimous vote of five governors, according to the Federal Reserve Act. If fewer than five are in office or available at the time of the vote, the Fed must submit a report to the chairmen of the House Financial Services and Senate Banking committees.

Bear Stearns Rescue

Such a situation occurred as the Fed voted March 14 to rescue Bear Stearns Cos. with a $13 billion loan. Mishkin didn't participate in the vote that day because he was returning to the U.S. from Finland.

A separate Fed regulation says five or more governors must vote to authorize a loan to a nonbank if the collateral consists of securities other than Treasuries or those from government agencies.

The board approved an amendment to its Rules of Organization in 2003 defining a quorum as a majority of members in office. Four governors are considered a quorum when five are in office.

A four-governor board may also increase each member's administrative workload. The board has five committees, each comprised of up to three governors, to divide up duties such as supervision of Fed district banks and the research departments.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net