It is easy to see why US financial regulators welcome the Securities and Exchange Commission’s (SEC’s) appointment of William McDonough, 69, the esteemed New York Federal Reserve Bank president for 10 years, to be the head of the new US accountancy board. He is considered the best choice to restore integrity to the accounting profession as well as US investors’ confidence.
McDonough, who has international banking and private as well as public sector experience – he worked for 22 years at First Chicago bank – has a knack for handling crises. The most publicised of these during his Fed presidency was the bail-out he co-ordinated for Long Term Capital Management, a hedge fund, that was near collapse and at one point in 1998 was thought to threaten the financial system.
US regulators have also been desperate to find someone with impeccable credentials to head the fledgling accountancy board. The Public Company Accounting Oversight Board (PCAOB) was set up to replace the profession’s discredited system of self-regulation after a wave of corporate scandals, allegations of conflicts of interest and failed audits.
But the question remains: Is heading the PCAOB McDonough’s first choice? Private bankers say McDonough had nurtured hopes of succeeding Alan Greenspan, now in his fifth term, as Federal Reserve chairman. But McDonough, a democrat, must have realised this was a long shot under a republican administration, and in any case, President George W Bush told reporters on April 22nd he wanted to reappoint Greenspan when his current term runs out in June 2004, and Greenspan has accepted the offer.
Another less well known reason why McDonough may have wanted to leave the Fed is that he was being outmanoevred by other US regulators who, in various statements in February, indicated their opposition to Basel II (see story on page 111) – that McDonough, as chairman of the Basel Committee on Banking Supervision, had so strongly advocated.
The US regulators’ unilateralist decision on Basel II, excluding all but a few of the most sophisticated US banks from the new global capital rules, has been matched for its authoritarian style by a stand taken at the PCAOB recently concerning the registration of non-US accountancy firms.
Charles Niemeier, the acting chairman of the PCAOB, has been insisting that all non-US accountancy companies must register with the board if they audit firms that have shares listed in the US, to ensure independent oversight of accountants. That decision has been taken despite considerable lobbying and threats of retaliation by the European Union, which has no comparable registration requirements for US accountancy companies. It remains to be seen whether McDonough, the new PCAOB head and a person of considerable international financial experience will go along with Niemeier’s stand.
