Volcker is the chairman and Austan Goolsbee, a noted University of Chicago economist and longtime Obama advisor on economics, will be staff director.
But those who know Volcker think his influence will be clearly felt, regardless of his portfolio.
His career has spanned half a century. He began working at the New York Fed in the 1950s, and five years later went to Chase Manhattan Bank, where he became a lifelong confidant of the Rockefeller family. By the early 1960s, President Kennedy brought Volcker into the Treasury Department in his first government job at the policy-making level.
He later held top appointments under Presidents Johnson, Nixon, Carter and Reagan.
In recent years, he has led investigations into how Swiss bankers handled the accounts of Holocaust victims, the United Nations' troubled food-for-oil program and the accounting scandal surrounding the collapse of Enron Corp. He also chairs the Group of Thirty, a who's who of world economists that examines complex public policy issues. It met over the weekend to discuss an upcoming report on the overhaul of financial regulations.
Volcker grew up during the Depression, raised by a father who taught him one lesson above everything else: Integrity is a person's greatest asset, said Volcker's sister, Virginia Streitfeld. She calls Volcker, who stands 6-foot-7, her "little brother."
He is known for practicing what he preaches about the nation living within its means. He travels with one business suit and lives in the same Manhattan apartment that he bought decades ago.
When he was Fed chief, he lived in a modest Maryland apartment and did his laundry on Saturdays at his daughter's house nearby, recalled Marina v.N.Whitman, a University of Michigan economist who has known Volcker for decades.
"Paul is one of the most frugal guys on Earth," Whitman said. "The advice he gives and the way he views the world are entirely consistent with his personal ethics and lifestyle."
He is outraged by executive compensation packages, seeing them as part of a larger breakdown on Wall Street.
"Paul can't imagine anybody wanting or needing that much compensation for consumption purposes," said Whitman, a member of the Group of Thirty. "It probably offends his sense of right and proper."
As for the bigger picture, Volcker feels that tremendous changes in the financial system have eclipsed government regulators, allowing excesses to go unchecked and subjecting the economy to ever greater shocks. Over time, the U.S. has moved from a system of highly regulated banks that funded the economy to a system of highly engineered financial markets that operated outside the scope of regulators.
Complex financial instruments were created that attempted to slice and dice the risks, handing them to investors who would be most willing to accept them.
But the mathematical models that were supposed to measure those risks actually hid the true risk from the marketplace, Volcker has said: For one thing, no mathematical model can accurately predict human hysteria in a financial panic. "Simply stated, the bright new financial system . . . failed the test of the marketplace," Volcker said this year.
"Paul has long been skeptical about financial engineering, which is another way of saying concocting schemes on Wall Street that nobody can understand," economist Blinder said. "He has some old-fashioned ideas that banks should apply some common sense to loaning money -- like making sure borrowers can repay."
The result of such problems was that the Federal Reserve, the linchpin of U.S. economic power, was forced to "take actions to the very edge of its lawful and implied powers" that violated "time-honored central bank practices," Volcker told the Economic Club of New York.
"The only reason I sleep at night," said a longtime friend and business partner of Volcker's, speaking on background, "is that Paul Volcker will have the president's ear."