As a Federal Reserve bank examiner in the mid-1980s, Esther George delivered bad news to a Nebraska banker: she was downgrading overdue loans, putting his firm’s survival on the line.

The owner “broke down and said, ‘This was my life’s work and your decisions are taking my bank away from me,’ ” George, now president of the Federal Reserve Bank of Kansas City, said in an interview. “I was absolutely sympathetic. I knew what it meant for the community.”

The man was a victim of the early 1980s speculative bubble that George witnessed firsthand. Today, after the crisis of 2008-9, she sees aggressive lending and lofty asset-price valuations as evidence that financial excesses may again pose a risk to the economy.

To forestall another bubble, George, 56, says it’s time for the Fed to start raising interest rates it has kept near zero since 2008. She argues that ultra-cheap credit is no longer needed to support an expansion that’s in its sixth year after the worst recession since the 1930s.

“The Fed took pretty aggressive action because we were in a fairly desperate situation,” George said. “Once we saw the economy turn, we might have removed some of those emergency measures, including zero interest rates.”

Her concern with financial stability prompted her to dissent against the Fed’s accommodative policy at seven of eight Fed meetings last year. Now her warnings, along with those of fellow regional Fed bank presidents including Richard Fisher of Dallas and Charles Plosser of Philadelphia, are starting to resonate at a central bank dominated by its Washington-based Board of Governors.

Elephant in Room

St. Louis Fed President James Bullard today called financial imbalances “my biggest worry going forward,” and said the Fed must avoid fanning a boom like the one in housing that could lead to another bust. “Asset-price bubbles are the elephant in the room for monetary policy in the U.S.,” he told reporters after a speech in St. Louis.

Fed officials including Chair Janet Yellen have said they are watching deteriorating leveraged-loan underwriting standards, and the central bank in September created a committee on financial stability under Vice Chairman Stanley Fischer.

‘Esther George has centered attention on the issue,’’ said Lawrence Goodman, a former U.S. Treasury official who is now president of the Center for Financial Stability in New York, an independent research organization. “There are an increasing number of converts at the Fed that financial stability matters.”

Bank Examiner

A native of Faucett, Missouri, a community 40 miles north of Kansas City, George studied business administration at Missouri Western State University in St. Joseph. She later earned a master’s degree in business administration from the University of Missouri-Kansas City.

Her first job after college was as an analyst for Dun & Bradstreet, a seller of business data. It involved too much travel alone for her liking, so when George saw a newspaper advertisement for a trainee bank examiner at the Kansas City Fed, one of 12 regional Fed banks, she fired off an application.

She got the job and entered a world where female examiners were rare. “When I would walk into a room, there were comments like ‘Oh, you brought a girl,’ ” George said. “That was part of the culture. But it was not going to deter me from what I needed to do.”

The year was 1982. The U.S. was in a recession, and Oklahoma City banks, supervised by the Kansas City Fed, were weakening after a regional energy boom fizzled following the collapse of oil prices.

Hot Times

In the years leading up to the crisis, “Times were good and hot,” recalled Julie Stackhouse, another Kansas City Fed examiner at the time who is now a senior officer at the St. Louis Fed.

Some banks kept bars in their executive offices to lubricate business, and a congressional probe later heard an account of a banker who drank from his boot to impress clients.

He worked at Penn Square Bank in Oklahoma City, which went bust after a series of risky oil loans, contributing to the 1984 collapse of Continental Illinois National Bank & Trust Co. -- the largest bank failure in U.S. at the time.

While George said she never witnessed people drinking out of their boots, executive bars were “a sign of the times in general. It was a different environment from today, for sure. You tended to see people who wanted to buy airplanes, even in small banks. Those were red flags when you saw excesses.”

By-the-Book

Camden Fine, who ran two Missouri banks and is now president of the Independent Community Bankers of America in Washington, remembers George as a by-the-book examiner who was tough but fair. “There was nothing soft-touch about Esther.”

George’s husband, Kevin, encouraged her career aspirations. He left a full-time teaching job and took up part-time work as a substitute so he’d have time to raise their two children.

Then-Kansas City Fed President Thomas Hoenig groomed George for promotion, plucking her out of bank examination in 1995 to give her experience in areas such as economic research and public affairs.

In 2001, George rose to senior vice president in charge of supervising 170 state-chartered banks and almost 1,000 bank and financial holding companies in a district that comprises Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri. In 2009, as the financial crisis was ebbing, she was recruited as acting director of supervision and regulation for the Fed system in Washington.

Straightforward Choice

In that role, she presided over meetings with top Wall Street bankers. Her command of those gatherings helped make her selection as Kansas City Fed president “pretty straightforward,” said Hoenig, who is now vice chairman of the Federal Deposit Insurance Corp. in Washington. When Hoenig retired from the Kansas City Fed, the bank’s board chose George to succeed him as of Oct. 1, 2011.

As head of the Kansas City Fed, George hosts and sets the theme for the Fed’s annual conference at Jackson Hole, Wyoming, where policy shifts have sometimes been foreshadowed.

Unusually, a number of economists from top Wall Street firms weren’t invited to this year’s forum, in August. The topic: “Re-evaluating Labor Market Dynamics.”

George also frequently meets with local employers and lenders. Their message, she says, is that raising rates would signal the economy is healthy again and encourage investment and hiring.

Beltway Counterweight

Duane Toro, 61, who owns a real-restate brokerage, heard George speak in Cheyenne, Wyoming, in September. He said George provides a common-sense counterweight to “inside the beltway Washington” that’s out of touch with the rest of the country.

“There needs to be a voice for middle America, a voice against la-la land back there,” he said. “The Kansas City Fed has quite often been that one voice.”

As a policy maker, George maintains the skepticism in evaluating asset prices that she learned as a bank examiner.

“She was influenced heavily by that experience, seeing how those collateral values increased and encouraged excessive lending and when the market turned those institutions were caught short,” Hoenig said.

She has pointed to elevated Midwest farmland prices as a warning sign of instability, along with burgeoning growth in the markets for corporate and sub-prime auto loans.

“When we look at it and say financial stability doesn’t appear to be an issue today, it didn’t appear to be an issue for us when we talked about it in 2007 and 2008 -- and in fact in turned out to be a terrible issue,” she said.