Banking on Economic Policy

Andreas Lehnert ’91, B.A. Economics

If you still have nightmares about the 2008 financial meltdown, you are not alone—and that should help you rest easier. Andreas Lehnert, director of the Federal Reserve Board of the Governors’ Division of Financial Stability, is doing everything in his power to prevent a reoccurrence, and he has a history that confirms he’s well prepared for the job.

Born in Colombia to a German father and British mother, Andreas grew up in a number of countries but developed an early fascination with American culture and society. He remembers begging his father to bring back cultural totems from his business trips, noting with a smile, “I may have been the first kid in Belgium to eat too many Pop Rocks.”

Owing to his father’s background and relatives who lived in East Germany, Andreas grew up with a strong sense of the salience and proximity of the Cold War. “Instead of the standard fairy tales,” he recalls a  bit wistfully, “I got the story of the post-war German economic miracle.” His immediate family eventually settled in Oklahoma in 1980 and became naturalized U.S. citizens in 1989.

Even before entering Trinity, Andreas was attracted to economics. “It seemed to be at the center of so many key issues of the time,” he explains—the ongoing conflict between communism and capitalism along with the high inflation/deep recession that gripped the U.S. in the early 1980s. Although claiming to have been an indifferent math student in high school, once at Trinity Andreas “understood economics as a scientific discipline with precise mathematical underpinnings. It all started to make sense.” He still remembers an exam question in professor John Huston’s advanced microeconomics class about the willingness to take small wagers. “The answer turned on the sign of the second derivative of the utility function,” he says, “and at that point I was hooked.”

Graduate school was inevitable. Andreas earned a master’s degree from the London School of Economics and Political Science followed by a doctorate from the University of Chicago. “At the time there was a lot of interest in theories of limited rationality and self control, and as a young person living hand-to-mouth in a big city, I would often observe my own failures to follow the purely rational course of action when managing my own precarious economic existence. I’m pretty sure every economics student has discovered that it’s impossible to ignore sunk costs.”

With two career paths available to him—tenure track positions in academia or jobs in the financial industry—Andreas chose to pursue his interest in banking and joined the staff of economists at the Federal Reserve Board of Governors in Washington, D.C. In the fall of 2006 he observed the beginnings of the dramatic rise in subprime mortgage defaults, which eventually overtook the entire financial system, and with it the real economy. As the crisis unfolded, Andreas was heavily involved in a range of government efforts to stabilize the economy. The experience of assembling the best evidence to help policy makers make difficult decisions gave him a deep appreciation for those who often were required to find the least bad alternative from among unpalatable choices. In 2009 he joined the Fed’s team that was running the first bank stress tests. “Much of the work we did was late at night or over weekends, often via conference call,” he says. In order to limit disruption to his family, Andreas participated in many calls from his car. “If my infant son was awake, on these late-night drives, I would bring him with me, so when I went off mute to speak, he could be heard burbling from the back seat.”

In his current position, Andreas continues his work on stress testing while charged with assessing and maintaining the resilience of the financial system and the policy measures designed to keep the financial system strong enough to absorb severe shocks. It’s an awesome responsibility and certainly not without stress, which he manages by running. Most mornings he can be spotted sporting a headlamp and jogging in the dark.

Along with safeguarding the financial system, Andreas and his wife, Carolyn J. Hill, devote their off-the-clock time to providing their two young sons the “typical American childhood” Andreas missed growing up—baseball games, riding bikes, and such. Given his professional interest, it’s no surprise that Andreas’ leisure reading leans toward books about disasters, technological failures, and foolproof systems that have broken down. Currently on his nightstand are books about the decision to launch the Challenger, the Forest Service’s early efforts to prevent wildfires, and his personal favorite, Why Buildings Fall Down.