Fed Pick Landon Faces Tough Questions Ahead

WASHINGTON — Allan Landon, the White House's pick to fill a vacancy on the Federal Reserve Board, likely faces some challenges ahead during the nomination process, including skepticism over whether he's really a community banker and about a particular transaction a decade ago.

But he also would come to the position with a reputation as an effective and prudent community banker who steered his institution away from many of the hazards that imperiled other institutions during the financial crisis.

Landon, now a lecturer at the University of Hawaii and a partner at private investment firm Community BanCapital, spent much of his banking career at the Bank of Hawaii Corp., where he served as chief executive officer from 2004 until his retirement in 2010.

Aaron James Deer, managing director of equity research at Sandler O'Neill, who covered Bank of Hawaii during Landon's tenure, said he built a reputation a "steady-as-she-goes" leader at the bank who focused on keeping the bank stable and profitable. The bank continued to hold a large portfolio of residential mortgages — Hawaii has some of the highest housing costs in the U.S. — but Landon avoided the kinds of unconventional or subprime mortgage loans that some other banks pushed.

"You didn't see a lot of volatility, you didn't see the bank ever taking big risks," Deer said. "They never did the kind of risky loans that got some banks into trouble. For all practical purposes, he really ran that bank flawlessly during his time there."

Landon's nomination is a nod to the community banking industry, which lobbied heavily in recent months for a community banker to be named to the Fed Board. Landon was tapped to serve out the term of former Fed Gov. Sarah Bloom Raskin, which expires on Jan. 31, 2016, and will be re-nominated for another term to the same seat to run through 2030.

But the Bank of Hawaii, which reported its total assets as worth $14.5 billion last year, is significantly larger than the traditional $10 billion cutoff for community banks. That has raised some questions about whether or not Landon truly fits the bill as a small banker. (Under a legislative measure passed by the Senate on Thursday, the White House would be required to nominate someone with community banking experience — defined as someone working at a bank under $10 billion in assets — but it would not apply to nominations that were already made.)

Industry observers agree, however, that the Bank of Hawaii is still considered a community bank, despite its larger size. They note that Hawaii is an unusual state given that it's an island and that Bank of Hawaii's activities and products are more consistent with a community bank than a regional or national institution.

"It's kind of a unique deal. You don't have a lot of players that are just focused on Hawaii," said Richard Riccobono, director of banks for the Washington Department of Financial Institutions, who knows Landon. "He was a community banker, well entrenched in the community."

The Independent Community Bankers of America agreed. Cam Fine, president of the group, said he was "pleased" with Landon's nomination as someone "who will bring a much-needed community banking perspective" to the Fed.

William Longbrake, a former vice chairman of Washington Mutual who worked with Landon while both served on the Federal Home Loan Bank of Seattle's board of directors, acknowledged that the Bank of Hawaii is "a really large community bank" but that Landon still fits the bill.

"The whole point of having a banker or two on the Board of Governors has to do with the Federal Reserve's regulatory role through bank holding companies, which is quite substantial now," Longbrake said. "He's totally qualified to meet the traditional expectations of that particular spot on the Board of Governors."

Lawmakers appear to agree. Sen. David Vitter, R-La., who has pushed for a community banker to join the Fed, noted in a press release that community banks are "routinely defined" as being under the $10 billion threshold. Still, the Louisiana Republican said he looks "forward to meeting with and hearing from Allan Landon about issues facing community banks and Main Street."

Sen. Elizabeth Warren, who also has pushed for "Wall Street outsiders" to fill the two Fed vacancies, said she was "encouraged" by Landon's nomination and said it could "add some much-needed diversity of views" to the board.

But Landon's career is not without blemish. In 2005, he and another board member of the Seattle Home Loan Bank, resigned after their member banks repurchased Home Loan Bank stock ahead of a cease-and-desist order from their regulator that would have frozen such transactions.

Another member of the Home Loan Bank's board complained to the bank that the stock was sold based on privileged information. The Seattle bank launched an investigation that was inconclusive as to any wrongdoing, but Landon and one other board member resigned anyway to avoid the appearance of impropriety. Landon denied wrongdoing and the stock repurchases — which equaled $25.4 million in the case of the Bank of Hawaii — were reversed.

Riccobono, who came to serve as the chief operating officer of the Seattle Home Loan Bank soon after Landon resigned, called the event "unfortunate circumstances" but said Landon acted with professionalism to resolve the issue.

"At the end, he and another banker stepped up and did the right thing," said Riccobono, who later went on to become president of the Seattle Home Loan Bank. "There was no personal gain for either one of them and to avoid even the appearance, they stepped down off the board and repurchased the stock. I have tremendous respect for both of the bankers to this day and I was intimately familiar with all of the facts."

Landon's confirmation may take some time. Justin Schardin, associate director of financial reform at the Bipartisan Policy Center, said the two new nominations to the board made last year — for Stanley Fischer and Lael Brainard — took an average of nearly five months between nomination and confirmation.

"If the recent past is any indication, he should expect a lengthy process," Schardin said in a Jan. 6 blog post.

But observers said that once in office, Landon could provide valuable expertise.

"We need more hands-on bankers than academics" on the Fed board, said Riccobono. "Al is a solid banker, a good community banker, and that's great to put somebody like that on the Federal Reserve Board."

— Rob Blackwell contributed to this article.