The overseer of financial markets

Famed for the dazzling gold blossoms they can sometimes produce, financial markets are nevertheless fragile plants. They can wilt on a whiff of public pessimism, or suddenly succumb to a hidden tangle in their roots.

Treasury Secretaries are supposed to help keep these hothouse creatures thriving. For that, they need credibility on Wall Street and a thorough understanding of the markets' complex subterranean structure -- or at least a good gardener on the staff who can provide both.

The one who wields the trowels, checks for fungi, and stakes droopy stems is actually three tiers down the organizational ladder: the undersecretary of the Treasury for domestic finance. An already-powerful post, it's likely to take on added importance in a department where neither the Treasury Secretary -- industrialist Paul O'Neill -- nor his rumored choice for the No. 2 slot -- law professor Kenneth Dam -- is from the world of high finance.

Persistent leaks have this undersecretary job going to Peter Fisher, who, as executive vice president of the Federal Reserve Bank of New York, has intimate links to the financial powers-that-are: Alan Greenspan and the bond markets.

The job lacks the power of fiat given to the heads of all those alphabet-soup banking and securities regulators, but its breadth gives its holder increasing clout. As technology blurs the lines among banking, securities, insurance, and even commerce, "what's really needed is to bring together the banking and other financial agencies," said Robert R. Glauber, who had the job in the first Bush Administration. The undersecretary's post "is a natural place for it all to come together."

Past undersecretaries have effectively run the President's Working Group on Financial Markets, which looks at threats to the financial system and is composed of top banking and securities regulators.

The undersecretary typically takes the lead in drafting major financial reform bills and shepherding them through Congress. Previous undersecretaries oversaw the passage of the 1999 law that tore down the barriers separating banking, insurance, and securities firms. The next undersecretary will be key in deciding how that actually works, because Treasury and the Federal Reserve now share power to decide what new lines of business banks can enter. Other hot upcoming issues he or she will face include whether to tighten the reins on government-sponsored enterprises such as Fannie Mae and Freddie Mac, and whether to allow insurance companies to be chartered and regulated at the federal, rather than the state, level.

The undersecretary also handles management of the federal debt, a task, ironically, that gets tougher and more sensitive as the debt dwindles.

No one doubts that Fisher -- who is now in charge of carrying out the Fed's monetary policy through the buying and selling of federal debt -- is hugely qualified for the job. But he could face some congressional hazing over his role in the Fed's 1998 salvage operation on that Titanic of hedge funds, Long-Term Capital Management. Return to main story