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Interview with H. Robert Heller Former Member, Board of Governors of the Federal Reserve System

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Interview with H. Robert Heller Former Member, Board of Governors of the Federal Reserve System Federal Reserve Board Oral History Project Interview with H. Robert Heller Former Member, Board of Governors of the Federal Reserve System Date: July 29, 2010, and July 30, 2010 Location: Washington, D.C. Interviewers: Lynn Fox, Winthrop P. Hambley, and David H. Small Federal Reserve Board Oral History Project In connection with the centennial anniversary of the Federal Reserve in 2013, the Board undertook an oral history project to collect personal recollections of a range of former Governors and senior staff members, including their background and education before working at the Board; important economic, monetary policy, and regulatory developments during their careers; and impressions of the institution’s culture. Following the interview, each participant was given the opportunity to edit and revise the transcript. In some cases, the Board staff also removed confidential FOMC and Board material in accordance with records retention and disposition schedules covering FOMC and Board records that were approved by the National Archives and Records Administration. Note that the views of the participants and interviewers are their own and are not in any way approved or endorsed by the Board of Governors of the Federal Reserve System. Because the conversations are based on personal recollections, they may include misstatements and errors. ii Contents July 29, 2010 (First Day of Interview) ......................................................................................... 1 Educational and Professional Background ..................................................................................... 1 Nomination to the Board ............................................................................................................... 11 Composition of the Board ............................................................................................................. 17 Banking Supervision—Mergers and Other Cases ........................................................................ 17 Initial Impressions upon Joining the Board .................................................................................. 20 The Appeal of Being a Board Governor ....................................................................................... 21 FOMC Meetings ........................................................................................................................... 23 Reagan Appointees ....................................................................................................................... 28 Council of Economic Advisers Lunches with Chairman Volcker ................................................ 28 Splitting the Leadership of Research and Monetary Policy ......................................................... 29 Transition from Volcker to Greenspan ......................................................................................... 30 Domestic Monetary Policy ........................................................................................................... 33 Policy before the 1987 Stock Market Crash ................................................................................. 35 1987 Stock Market Crash ............................................................................................................. 38 Challenges for the Banking Industry during Board Tenure .......................................................... 43 Interstate Banking ......................................................................................................................... 46 Bank Holding Company Model versus Universal Banking Model and Nonbank Banks ............. 48 Banking Regulation and Supervision ........................................................................................... 51 Basel I and Capital Requirements ................................................................................................. 56 Monetary Policy and Banking Supervision Responsibilities ........................................................ 59 The Board’s Responsibility for Implementing Consumer Financial Services Laws .................... 63 Being Administrative Governor .................................................................................................... 65 Designing the Official Board Flag ................................................................................................ 66 iii Structure of the Federal Reserve ................................................................................................... 69 The Board’s Long-Tenured Staff .................................................................................................. 72 Working with Other Governors .................................................................................................... 75 July 30, 2010 (Second Day of Interview) ................................................................................... 79 The Domestic Macroeconomy ...................................................................................................... 79 Leaving the Board and Impressions of Today’s Fed .................................................................... 81 International Banking ................................................................................................................... 85 A Satisfying Life ........................................................................................................................... 89 iv July 29, 2010 (First Day of Interview) MS. FOX. Today is Thursday, July 29, 2010. This interview is part of the Oral History Project of the Board of Governors of the Federal Reserve System. I am Lynn Fox, Senior Adviser, in the Office of the Staff Director. I’m joined by Winthrop P. “Win” Hambley, Senior Adviser, in the Office of Board Members, and David H. “Dave” Small of the FOMC (Federal Open Market Committee) Secretariat in the Division of Monetary Affairs. We are interviewing H. Robert Heller, a member of the Board of Governors from August 19, 1986, to July 31, 1989. This interview is taking place at the Board of Governors in Washington, D.C. Educational and Professional Background MS. FOX. How did you become interested in economics, and what was your career path? MR. HELLER. I’ve been interested in economics since high school. At the end of high school, we had to write an essay on what we wanted to become. I wrote that I wanted to become an economic journalist. That aspiration was never fulfilled. The journalist was never there, but I wrote a lot, and I became an economist. MS. FOX. Where were you born? MR. HELLER. I was born in Cologne, Germany. I attended high school in Cologne. It was a UNESCO (United Nations Educational, Scientific, and Cultural Organization) model school, so there was a fair amount of international emphasis in the curriculum. Otherwise, it was just a regular German high school. As a high school student, I wanted to come to the United States. In those days, the United States was the Promised Land. But that dream didn’t work out in high school. I went to the University of Cologne for one semester in the summer of 1960. A little bit later, my Page 1 of 90 Oral History Interview H. Robert Heller girlfriend got a scholarship to go to a small college in Winona, Minnesota—College of St. Theresa. We drew a circle of 200 miles around Winona, Minnesota. I wrote a letter to every college in the circle, and there were lots of them. I wrote probably 70 to 80 letters to many colleges in Iowa, Minnesota, and Wisconsin. A dozen of the schools sent me application materials. I was admitted at about half a dozen of them, including some very good ones—St. Olaf and Carlton College in Minnesota, Cornell College in Iowa, and Grinnell College in Iowa. Late in the process I got a letter from Parsons College in Fairfield, Iowa. The college offered paid room, board, and tuition, plus $50 a month. That was the best offer I had received, so I was off to Fairfield, Iowa. As I got off the plane in New York, there was an article in both Time magazine and Life magazine. The Time magazine headline was “Welcome to Flunk-Out U.” Parsons College was known as the worst college in the Midwest, but I had a really good time there. Parsons College had almost gone broke a few years before I arrived. Then Millard G. Roberts became the new president. He had a novel concept. He said, “If you pay full tuition, I’ll admit anybody into the college.” Tuition was the same as at Stanford or Harvard. Also, he paid the faculty well. The highest salary levels in an American Association of University Professors survey listed Harvard, Yale, Chicago, Parsons College, Princeton, and so on. Shortly after I left Parsons, a few years later, it lost its accreditation. It’s now the International Maharishi University. MS. FOX. Did you major in economics at Parsons? MR. HELLER. No. Lewis F. Wheelock was my adviser. He recommended that I study American history, American government, American political parties since I was now in the Page 2 of 90 Oral History Interview H. Robert Heller United States. I said, “What about economics?” He growled, but I managed to take a principles course in economics. I got out of Parsons College within three semesters. It had a trimester system. I graduated from high school in 1960 and came to the United States in the fall of 1960. By August 1961, I had a B.A. because Parsons gave me credit for my one semester in Cologne, a summer semester there. German high school is a year longer than American high school, so I received credit for
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