SAN FRANCISCO As President Barack Obama weighs whom to nominate to succeed Federal Reserve Chairman Ben Bernanke, he will look well beyond their stance on monetary policy, the traditional measure of a good central bank chief.
Indeed, how the top two contenders to lead the U.S. central bank - former Treasury secretary Lawrence Summers and Fed Vice Chair Janet Yellen - rate as regulators may be a decisive factor in Obama's pick.
The 2007-2009 financial crisis left deep scars on the U.S. economy, and underscored the importance of smart regulation in maintaining the stability of the financial system.
Whoever takes the helm of the Fed when Bernanke's term expires at the end of January will bear responsibility for protecting the economy from a return of financial excesses.
"We are used to thinking about inflation or unemployment, but the Fed has taken on a massive role as a financial regulator, and I think that is going to be a much larger task for the new chairman," said John Cochrane, a professor at University of Chicago's Booth School of Business.
The differences between Summers and Yellen on regulation may be narrower than commonly thought.
From her early days at the Fed board in the 1990s, Yellen was an advocate of tough banking supervision within the Fed.
As president of the San Francisco Federal Reserve Bank she raised early alarms not only publicly about the dangers of the housing crisis but within the central bank about the need for higher capital requirements for banks with large exposures to risky real estate lending. As Fed vice chair she has spoken regularly about the need for additional standards to protect the financial system.
The regulatory views of Summers have been less consistent.
As Treasury secretary under President Bill Clinton, Summers oversaw the repeal of the Glass-Steagall Act, which had imposed barriers between commercial and investment banking. The repeal opened the door to the creation of giant financial institutions that now are considered "too big to fail."
He also helped torpedo a plan to regulate swaps, setting the stage for an explosion in derivatives trading that ended up contributing to the financial crisis.
But Summers also coauthored a slew of recommendations on curbing predatory lending practices and, as Obama's economic adviser from 2009 to 2010, he championed creation of a new regulator to protect consumers from the abusive lending practices that helped sow the seeds of the financial crisis.
"I wouldn't have described him as deregulatory in the '90s and massively regulatory now," said Michael Barr, a law professor at the University of Michigan who worked at the Treasury on Wall Street reform when Summers was an economic adviser to Obama. "I think his views have been nuanced."
Between his stints in public service came a somewhat infamous episode at the Kansas City Fed's central bankers' meeting in Jackson Hole, Wyoming, in 2005. There, Harvard University's then-president belittled a paper by an up-and-coming economist warning of a financial crisis, calling its suggestion for tighter regulatory limits "Luddite" and "problematic."
The student, Raghuram Rajan, was last week appointed to head India's central bank. He said later the episode left him feeling like "an early Christian who had wandered into a convention of half-starved lions."
But Summers' views are closer now to Yellen's than they had been. He backed away from his earlier stance on swaps after seeing the massive growth in the industry, and now, like Yellen, embraces derivatives clearing as part of the solution.
"You can see a shift in his views in that he saw mandatory clearing was absolutely essential by 2008," Barr said.
That shift is also apparent in how he now talks about the role of regulation.
"The roots of this crisis lie not in the stars, they lie heavily in the failure of government to regulate financial markets with adequate vigor," he said during a policy debate at Stanford University last year, adding that the "most embarrassing" photo op in American political history was a 2003 shot of financial regulators taking shears and a power saw to a thick book of rules.
"I am right now more worried about the gaps in the regulatory system than I am about the excesses of regulation," he said.
Some have raised doubts that a man who has worked for hedge fund giant DE Shaw and Citibank, and who was seen as a force for deregulation in the 1990s, could be serious about cracking down on financial firms.
But supporters argue that the critics have it wrong.
"I can report that in internal discussions, he was one of the most uncompromising advocates for financial regulation," Obama's regulation czar, Cass Sunstein, wrote recently.
Spokespersons for Summers and Yellen declined to provide comment for this article.
The biggest difference between the contenders to be the next Fed chair may be in how they view their own actions in relation to the crisis.
Summers has staunchly defended his best-known deregulatory effort, saying the repeal of the Depression-era law that had kept commercial banks from merging with investment banks played no part in the crisis.
"I don't think that the argument - that somehow if you separated investment banking activities and commercial banking activities you wouldn't have had the crisis - is a very plausible one," Summers said in 2009. "If anything, excessive separation between them may have led to more crisis."
Yellen by contrast seemed to blame herself for being completely blindsided by the extent of the crisis.
"Did I in any way see or contemplate the massive meltdown that we had because of securitization, the credit rating agencies, the growth in leverage in the shadow banking system?" Yellen, who headed the San Francisco Fed from 2004 to 2010, told the Financial Crisis Inquiry Commission shortly after she took her current job. "I didn't. I'm sorry. I wish I had, but I didn't."