Fed nomination becomes climate dispute – NRC

Yes, she wants to regulate American banks more strictly. And no, she’s not going to dictate to those banks who they can lend their money to. Sarah Bloom Raskin said Thursday in a hearing in the US Senate, in response to questions from Republicans who strongly opposed her nomination.

Raskin has been nominated by President Joe Biden as vice chairman on the board of the Federal Reserve, the US central bank. She will be responsible for the supervision of financial institutions. Republican senators fear that Raskin’s oversight will primarily target investments in companies in the fossil fuel industry.

The discussion shows how difficult it is for Biden to gain political support for his climate policy. Especially in the Senate, where Republicans oppose any measure that could be bad for the fossil fuel industry.

Central banks in Europe are increasingly asking banks, institutional investors and insurers to estimate the climate risks of their investments. This not only concerns the consequences of global warming, but also the chance that investments will not be recouped due to stricter climate policy: stranded assets.

Raskin also wants the Fed to investigate these kinds of risks. But the Republicans don’t like this. Pat Toomey, a member of the Senate Banking Committee, wrote in a letter to Biden that Raskin is in favor of pressuring banks “to stop lending to traditional energy companies.” And according to Senate Republican leader Mitch McConnell, Raskin wants “unelected bureaucrats to financially intimidate the private sector into policy changes that have insufficient support to become law fairly.”

Dying industry

Republicans’ fears are not entirely unfounded. Raskin – a former Fed board member and Deputy Secretary of the Treasury, now a professor at Duke University in North Carolina – regularly intervenes in the American climate debate. This is how she wrote in May 2020 The New York Times an op-ed under the headline “Why is the Fed Spending So Much Money on a Dying Industry?” According to her, the Fed is ignoring “clear warning signs about the economic impact of the looming climate crisis,” by taking measures that “will increase greenhouse gas emissions at a time when fossil fuels are a terrible investment even in the short term.”

In a discussion at the University of Berkeley last spring, Raskin discussed the role of the regulator. According to her, the transition to a fossil-free economy is following a “treacherous” path. Lounging exacerbates the impacts of climate change, but if the transition moves too fast, energy security is at risk. “We need financial regulators to move to a net-zero economy in the most stable, least dangerous way,” Raskin said.

During Thursday’s hearing, she showed a lot more caution. “It is inappropriate for the Fed to make decisions about granting or allocating credit,” she said. “Banks and bankers determine who they lend to. It’s not the Fed’s job to pick winners and losers. That doesn’t fit the Fed’s institutional role.”

Extreme weather

Meanwhile, the US central bank has been working for some time on a system to map the risks of climate change for the financial sector. The Fed is also looking at the consequences that extreme weather and flooding can have on companies. They also investigate which investments can be affected by government policy to reduce CO₂to reduce emissions.

Democrats hope to nominate Raskin this month. Whether or not this succeeds partly depends on the party itself. All Republicans will vote against, so she can only be nominated if all Democrats support her.

It’s not that far yet. Joe Manchin, the conservative West Virginia Democrat who has already opposed Biden’s climate policy, has yet to speak out. Even if he supports her nomination, he is still waiting for his party colleague Ben Ray Lujan from New Mexico, who suffered a heart attack last week.