Biden Fed pick faces GOP fire on climate stances
President Biden’s pick to be the Federal Reserve regulatory chief said Thursday it was “inappropriate” for the central bank to steer business away from fossil fuel companies — despite previously calling on financial regulators to take stronger action to fight climate-related risks in the financial system.
Sarah Bloom Raskin, whom Biden nominated last month to be Fed vice chair of supervision, told senators Thursday the bank should not “pick winners and losers” and focus only on assessing climate-based risks facing banks.
“It is inappropriate for the Fed to make credit decisions and allocations. Banks choose their borrowers, not the Fed,” Raskin told the Senate Banking Committee during her confirmation hearing. She testified beside economics professors Lisa Cook and Phillip Jefferson, who Biden also nominated for two vacant seats on the Fed board.
Raskin added the Fed should not “choose winners and losers. Doing so is not the proper institutional role of the Fed. That’s a cardinal principle of Fed supervision.”
She said she’s held that standard throughout her career as a financial policymaker.
Raskin, an Obama-era Fed board member and deputy Treasury secretary, would be in charge of the Fed’s supervision and regulation of the banking system if confirmed by the Senate. While she had received broad Republican support for her previous appointments to the Fed and Treasury, GOP senators have rallied against Raskin’s current bid to join the bank over her previous statements on climate change.
Republicans like Sen. Pat Toomey (Pa.) laid out what is becoming a standard playbook to block executive branch attempts to address climate risk.
As Democrats argue that assessing and reducing climate risk is well within the Federal Reserve’s existing mandate, Republicans offered a Catch-22: that though Congress has struggled for decades to act on climate change, it remains exclusively Congress’s job.
“The unelected governors of America’s central bank shouldn’t be responsible for dealing with difficult issues like global warming, social justice and education policy,” Toomey said.
“This isn’t about the importance of those issues. It’s about keeping the Fed apolitical and independent and ensuring that elected, accountable representatives make difficult decisions.”
While Democrats have urged the Fed to be more diligent about climate-related financial risks, few beyond the party’s most liberal wing support the central bank steering capital away from the industry. Fed officials across the ideological spectrum have also criticized the idea of using the bank’s regulatory powers to drive money away from fossil fuels.
If Raskin is unable to win over any Republicans, she will need unanimous support from all 50 members of the Senate Democrat Caucus and a tie-breaking vote from Vice President Harris to be confirmed. While moderate Democrats have sunk some of Biden’s previous financial regulatory picks, Raskin appeared to draw little concern from potential holdouts.
“I think it’s critically important that the Fed gets all the information they can when they’re dealing with risk to our financial system,” said Sen. Jon Tester (D-Mont.). “And I think that it is rather obvious that climate change has to be part of the information that you gather.”
Under Fed Chairman Jerome Powell, a Republican renominated by Biden, the central bank has joined and established several research committees but has ruled out penalizing banks for serving the fossil industry.
In his January confirmation hearing, Powell said that “our role on climate change … is to ensure that banking institutions we regulate understand their risks and can manage them, and it’s also to look after financial stability.”
Raskin’s Democratic supporters insisted her views were in line with Powell’s and should be no issue for Republican senators who have rallied behind another term for the Fed chief.
“Why are the Republicans so stirred up by a mainstream position? Why is it OK when Jerome Powell says the climate issues are part of the Fed’s mandate, but it’s not OK when Professor Bloom Raskin and other nominees say the same thing?” asked Sen. Elizabeth Warren (D-Mass.), who opposed Powell’s renomination.
“Asking the Fed to ignore climate risks is to ask the Fed to defy its congressional mandate. An institution responsible for the security of our financial system and the growth of our economy cannot blind itself to climate issues,” she continued.
Raskin’s Republican critics allege she would use financial stability concerns as a cover to steer the Fed toward penalizing banks who serve fossil fuel companies. As an example, several GOP senators cited an op-ed Raskin wrote in May 2020 urging the Fed not to allow fossil fuel companies to access its pandemic emergency lending and credit facilities.
But supporters charge that Raskin’s op-ed had simply identified that Republicans had done what they are now accusing her of doing: using federal power to protect favored industries.
“The oil and gas industry’s allies are attempting to de facto prohibit the Fed from considering the known and widely recognized risks from climate,” according to a statement from Dennis Kelleher and Philip Basil of Better Markets, a think tank that supports stricter financial regulations.
Moving against attempts to address fossil fuel risk is itself “a political directive to the Fed to not consider the risks associated with climate even though the Fed is mandated by statute to address risks regardless of origin,” Kelleher and Basil added.
Republicans also cited a selection from an essay Raskin wrote in Project Syndicate, in which she wrote that federal regulators need to “ask themselves how their existing instruments can be used to incentivize a rapid, orderly, and just transition away from high-emission and biodiversity-destroying investments.”
The Chamber of Commerce built on these writings last week when it called on senators to ask Raskin if it is “the role of the Federal Reserve to direct capital away from certain industries that are politically disfavored or direct capital towards industries that are politically favored?”
“You support driving the oil and gas industry into bankruptcy. Do you think that would be a proper role for the Federal Reserve?” Sen. John Kennedy (R-La.) asked.
Raskin disputed the question’s premise, saying her op-ed focused on how the Fed should run a specific relief program created by Congress and had nothing to do with its ongoing supervision and regulation of major banks. She added she does not support imposing specific rules to hurt the fossil fuel industry but was concerned about exposing taxpayers to losses from oil and gas companies.
“This was a special program set up by the CARES Act, by the Congress that appropriated taxpayer money. This was an issue quite unlike the issue of supervision,” Raskin said, referring to the 2020 relief bill signed by former President Trump.
The divide present in the room has been elucidated in open letters and press statements since Biden announced his Fed picks.
Two key ideological divides exist between the two groups concerning the role of banking regulators generally and their specific role in deflecting risk.
Conservative lawmakers like Toomey and trade groups like the Chamber of Commerce have argued that Raskin — who has been outspoken on the financial risks posed by fossil fuel assets in the age of climate change — are acting as “unelected” policymakers attempting to defund fossil fuels.
“We just kept hearing this scripted mantra that the Fed should not pick winners and losers. But of course, what she has advocated for in speech after speech and other venues is that the Fed should do exactly that,” Toomey said.
The Better Markets letter, however, argues the quotes Toomey and others have objected to are taken out of context. Kelleher and Basil say that if the rest of those essays are considered, Raskin’s statements aren’t very different from those made by others, from institutional investors to Powell to former Fed Vice Chairman of Supervision Randal Quarles.
“Climate-related risks vary across jurisdictions and we need to look at how risks might be amplified by feedback loops with the real economy,” Quarles said in a July 2021 speech.
As Toomey suggested, a disaster-induced financial collapse has yet to happen. But if Raskin is confirmed, a key part of her job will be to move the agency toward a more proactive role, former Fed regulator Sarah Dougherty of the Natural Resources Defense Council told The Hill.
This has implications beyond climate, Dougherty said.
“Using historical data is what made [the economic collapse of] 2008 happen. All models assumed that housing prices wouldn’t go down for more than a quarter, because historically they didn’t,” she said.
The subsequent crisis, she said, “showed that history is not a perfect predictor of the future. And it’s the same with climate. So even if banks have withstood all hurricanes so far — well, that’s history, and we know the future will be different than the past. Even if you say you’ll model only the biggest storms — records keep being broken, and the frequency is more.”
A bank may be able to “withstand one Category 4 hurricane — but what about three? What if it happens with a lot of wildfires, as we’re already stretched thin on emergency services? One plus one in these cases doesn’t always equal two,” Dougherty added.
The main difference between a climate crisis and the 2008 financial crisis is that this time “we see it coming,” Dougherty added.