Lael Brainard, President Biden’s nominee for vice chair of the Federal Reserve, has told the Senate banking committee that she does not expect the Fed to cut off financing to the fossil fuel industry.
During Brainard’s confirmation hearing with the committee, Republican senator Pat Toomey raised comments made by Biden’s nominee for the other vice chair role, Sarah Bloom Raskin. Raskin is quoted as saying the Fed “should not be directing money to further entrench the carbon economy”. Toomey asked Brainard whether she agreed.
Brainard declined to address Raskin’s comments directly, but stressed that the Fed was focused on climate change as a material risk to banks and the financial system.
“We would not tell banks which sectors to lend to or which sectors to not lend to, but we do want to make sure that they are measuring, monitoring and managing their material risks in many large financial institutions,” Brainard responded.
Fed officials are coming under increasing pressure from Republicans over their consideration of climate risks and other issues which GOP lawmakers see as falling outside the Fed’s mandate. Toomey said the central bank should arguably be more concerned about the potential fallout of a trade war with China, a Russian invasion of Ukraine or another pandemic.
Brainard said the Fed’s supervision of risks including climate risks is “pretty pedestrian stuff”. She explained that the Fed’s guidance focuses on ensuring that banks have the appropriate governance structures in place, and the right data and models, and is not specific to any particular sectors.
She also said that she has not suggested the Fed should do stress tests for climate. Fed officials have previously drawn a distinction between stress tests, which assess the impact on institutions of particular events having extreme impact, and climate scenarios, which model a range of possible outcomes. Fed chair Jerome Powell said on Tuesday that the latter will be a priority for him if confirmed for a second term.
This page was last updated January 17, 2022
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