Sharper Fed climate policy is under attack.
If you are not familiar with Sarah Bloom Raskin, you should be. Raskin, currently a Duke law professor, faces a nasty confirmation battle in the U.S. Senate over her appointment as the Federal Reserve’s top bank regulator. Raskin is part of a group of candidates Biden has put forward to fill critical roles at the Federal Reserve Board, the primary overseer of America’s $18 trillion banking system.
Leading the bank’s sprawling regulatory mandate would make her the second most powerful Fed official after Chair Jerome Powell. It would also mark a break from Powell’s laissez-faire approach to climate risk. The nation’s largest Banks are concerned that Raskin and the U.S. Treasury Secretary Janet Yellen –– also a former Fed Chair –– are eager to expand the Fed’s role beyond its historic mission to supervise financial risk by employing risk mitigation tools created after the 2008 financial crisis to now address the risk of climate change.
They are not wrong. One of Yellen’s first moves at Treasury was to direct its robust Financial Stability Oversight Council to publish a report with a blunt conclusion: “Climate change is an emerging threat to the financial stability of the United States.”
Both women believe that the Fed must sharpen its focus on climate risk. Raskin is challenging what she argues is a “default assumption” by regulators that there will be a smooth transition from today’s carbon-based economy. Financial regulators, she argues, must “reimagine their role, so they can play their part in the broader reimagining of the economy.”
“Climate change is an emerging threat to the financial stability of the United States.”
To do this, she would support using the Fed’s broad regulatory powers to “accelerate a rapid, orderly and just transition to a renewable, biodiverse and sustainable economy.” As the regulator in chief, she would move quickly to pressure banks and other financial institutions to adapt their lending, investing and risk practices to consider climate risk. Central to that would be a reevaluation of the relationships between the country’s largest banks and the world’s largest fossil fuel companies. If Raskin has her way, it would get more expensive for banks to do business with oil and gas companies. That, in turn, would have a meaningful impact on how trillions of dollars will be used –– or not –– to accelerate the transition to a low carbon economy.
This is hardly radical stuff. It would simply allow the U.S. to catch up with the European Central Bank, the Bank of England, the Bank of Japan and the Bank for International Settlements, to repurpose practices adopted after the financial crisis like stress tests, living wills and risk-based capital standards –– all within their existing mandates. The U.S. would also seek to bridge the regulatory gaps between the financial sector and the shadow banking system, which allows colossal asset managers like BlackRock, Vanguard and State Street to escape the systemic oversight required for banks.
For these modest ideas, Raskin has been branded a “systemic risk” by The Wall Street Journal.
Hardly. What she would do is disturb the cozy –– and profitable — status quo that has driven fossil fuel lending and investment for more than a century. So the stakes on Raskin’s Senate confirmation are high. If she is appointed, it would be the strongest signal yet that the world’s most influential central bank is ready to accelerate efforts to speed up the fossil fuel transition. If she loses, it will be a lot easier for the oil and gas industry and its banking allies to set the pace — and rules — for a carbon transition. That is a very risky proposition.