June 27 (Bloomberg) -- Elizabeth Duke, a Virginia banker, was confirmed today by the Senate to a seat on the Federal Reserve Board of Governors, breaking a yearlong impasse between the Bush administration and Congress.
The Senate confirmed Duke for a term ending in 2012 as the chamber adjourned for its July 4 recess. Senate Democrats and the White House were in talks over the past day about having at least one nominee join the Fed board. Today's decision leaves one Fed board vacancy and sets the stage for the next president to pick as many as three new governors.
Duke, 55, will become the only governor with commercial- banking experience, providing expertise as the Fed completes rules to curb lax mortgage-lending practices in the aftermath of the housing bust. As a board member, she will be a permanent voter on interest rates at the Fed, at a time when officials are expressing increasing concern about inflation. The Senate didn't vote on two other nominees.
``You are looking at the board that will be in place through the end of the year,'' said Brian Sack, senior economist at Macroeconomic Advisers LLC in Washington and a former Fed research manager. ``This situation still gives the incoming president considerable power to shape the board next year.''
Duke will also become, once sworn in, the first woman on the board since another former bank executive, Susan Bies, departed in March 2007. President George W. Bush in May 2007 nominated Duke, chief operating officer of Portsmouth, Virginia-based TowneBank, and Larry Klane, former president of global financial services at Capital One Financial Corp., for the Fed posts.
Awaiting Confirmation
The administration also nominated Randall Kroszner, a Fed governor whose term expired on Jan. 31, for a new 14-year term. He has continued to serve while awaiting confirmation, as allowed under Fed rules. Kroszner, on leave from the University of Chicago business faculty, heads the Fed board's banking supervision committee.
Today's approval of Duke ``will probably be it'' for additions to the board this year, Sack said. Fed Governor Frederic Mishkin resigned last month, effective Aug. 31.
That means the next U.S. president, to be elected in November, would be able to choose as many as three new candidates to the central bank that steers the world's largest economy.
In confirming Duke, ``we are ensuring the Fed can function during these difficult economic times,'' Senate Majority Leader Harry Reid, a Nevada Democrat, said in a statement.
Keep Pressing
The Bush administration will keep pressing the Senate to confirm Klane and Kroszner, White House spokeswoman Emily Lawrimore said.
Bringing Duke on will prevent a majority of the Fed's interest-rate setting Open Market Committee from shifting to the heads of the central bank's regional branches. That may have affected the panel's votes, as the district-bank presidents tend to dissent from rate decisions more often than governors.
The FOMC voted 9-1 this week to leave the benchmark interest rate at 2 percent, pausing after seven straight reductions. In its post-meeting statement, officials said inflation risks had increased. At the same time, they stopped short of committing to raising interest rates.
``Putting another Fed governor back in at the FOMC meetings could undercut the move in the committee to a full inflation- risks tilt,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``Fed governors normally vote more in line with the consensus being forged by the chairman.''
Debates Legislation
Duke will also be involved in the Fed decision on whether to extend the emergency authority to lend to investment banks past September, a move made as part of the central bank's March rescue of Bear Stearns Cos. She'll be in a position to help craft the Fed's position on regulating such firms as Congress debates legislation next year.
Democrats, the majority party in both houses of Congress, are aiming to win the White House in November, gaining power to change leadership at the central bank and federal agencies. Bush's term ends Jan. 20.
Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat who has faulted the Fed for lax oversight of mortgage-lending practices during the housing boom, had refrained from scheduling a vote for the nominees. Today's action bypassed Dodd's panel.
Association Leader
Duke, who has been a banker for more than 30 years, was the first woman to chair the American Bankers Association, the industry's Washington trade group, since its founding in 1875. She served as chairman from 2004 to 2005 and was on its board of directors from 1999 to 2006.
Duke served on the Richmond Fed bank's board from 1998 to 2000. ``She made great contributions then, and I know she'll make tremendous contributions to the system now,'' said Jeffrey Lacker, the bank's president, who was research director at the time.
Duke returned to community banking after the small Virginia lender she headed from 1991 to 2001 eventually became part of Wachovia Corp., now the fourth-biggest U.S. bank by assets.
She formerly served as executive vice president of Wachovia. TowneBank, her current employer, had $2.6 billion in assets as of March. Duke holds a master of business administration degree from Old Dominion University in Norfolk, Virginia, and majored in drama at the University of North Carolina at Chapel Hill. She acted in a Norfolk dinner theater before starting in banking.
Duke would be eligible for reappointment to a full 14-year term after her partial term expires. Governors earn $172,200 this year, while Chairman Ben S. Bernanke has a salary of $191,300.
Duke held at least $8.2 million in assets, including more than $5 million of stock in Wachovia, according to a financial- disclosure filing last year. Fed officials are required to divest themselves of bank shares.
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