NY Fed to shorten search to replace Geithner

By Kristina Cooke - Analysis

NEW YORK (Reuters) - The New York Federal Reserve will likely short-cut its usually lengthy search for a new president given the widening financial crisis, and may quickly focus on the least-controversial candidates to replace Timothy Geithner.

Given the extraordinary circumstances, economists said the Fed likely will consider only people well-known to the U.S. Federal Reserve system such as senior New York Fed official William Dudley or Kevin Warsh, who serves on the Washington-based Board of Governors.

"We are moving ahead with prudent expedition," Stephen Friedman, chairman of the New York Fed's board of directors, told Reuters.

The New York Fed is the most important of the 12 regional Fed banks. It serves as the U.S. central bank's most direct link to Wall Street as well as its chief crisis manager.

Geithner, named by President-elect Barack Obama on Monday as his choice for Treasury Secretary, played a leading role in the talks to rescue financial firms Bear Stearns, AIG and Citigroup. He has also been criticized for his role in allowing Lehman Brothers to fail, which touched off a financial panic.

Friedman will form a search committee to find a replacement for Geithner, who joined the Fed from the International Monetary Fund.

Searches for regional Fed presidents are often lengthy processes. Indeed, Geithner's appointment in October 2003 came four months after his predecessor William McDonough stepped down.

"In times past, both at the New York Fed and other regional banks it has been a matter of leisure. But this is an unusual situation," said Stephen Stanley, chief economist at RBS Greenwich Capital.

Faced with the worst financial crisis since the Great Depression, it is likely the New York Fed's board of directors will work closely with the central bank's Washington-based Board of Governors to speed up the selection and approval process, analysts said.

The pressure to move fast "might rule out some of the less obvious choices that would come up only with long periods of digging around," Stanley said.

Some names that have been touted are Dudley, who was a former Goldman Sachs economist before joining the New York Fed, and Warsh, a liaison to financial markets for the Fed board.

"If there's one person who has very solid credentials through this period in a quiet role, it's Bill Dudley, who came to the New York Fed from Wall Street and was very well respected as an economist. No one would argue about Dudley's credentials," said David Kotok, chief investment officer at Cumberland Advisors.

Dudley, who is in charge of the Fed's market operations that are used to manage the central bank's interest-rate target, works directly with the policy-setting Federal Open Market Committee, Kotok noted, meaning he is also a known entity in Washington.

"There is no question he would be easily approved. There is no controversy I know of about Dudley," said Kotok.

Cary Leahey, an economist at Decision Economics in New York, agreed.