WASHINGTON - Peter Diamond, President Obama's nominee to fill a vacancy on the Federal Reserve Board of Governors, said Tuesday that the Fed "has much work ahead" of it in strengthening its ability to respond to financial instability.
At a confirmation hearing before the Senate Banking Committee, the Nobel Prize winning economist said his research into how the economy deals with risks should stand him in good stead as a Fed Governor.
Diamond, a graduate of Yale University with a PhD in Economics from the Massachusetts Institute of Technology (MIT), has had difficulty winning confirmation. And the committee is reconsidering his nomination.
Ranking Republican Sen. Richard Shelby, R-Ala., repeated his opposition, saying that, despite his renown, Diamond is "not the right person for this particular job."
Diamond vowed to "work to the best of my abilities to fulfill the responsibilities of this office," and said that those responsibilities have grown since the financial crisis.
"The experience of the recent financial crisis and the ensuing financial reform legislation have underlined the multiple responsibilities of the Fed in working to foster maximum employment and price stability," he said. "The Fed has much work ahead in order to implement and fulfill the tasks laid out by the financial reform legislation. I would be honored and pleased to be part of the process of responding to this challenge."
Diamond said he is well prepared for the responsibility.
"A central theme in my research career has been how the economy deals with risks, both risks at the individual level and risks that affect the entire economy," he said. "I have thought extensively and written about the risks in the economy, and how markets and government can combine to make the economy function better."
"In particular, the research that led to my being a co-recipient of the Nobel Prize in Economic Sciences has addressed how the costs and delays in learning about market opportunities affect the workings of the economy," he continued. "As noted by the prize committee, the basic research on this topic has been used as a starting place for applied research in a wide variety of areas -- not only the housing and labor markets where sizable delays are clearly visible, but also in monetary theory and analysis of the capital market."
"Indeed, the varying speeds between the occurrence of surprises to financial firms and their abilities to respond is a central element in the development of financial crises, making search theory an important part of understanding how to avoid and limit future shocks to the financial system," Diamond added.
He said his background "would prove very helpful at the Federal Reserve, particularly as a part of the process of addressing our heightened awareness of the dangers of systemic risks."
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