Public positions taken by President Biden’s recent nominees to the Federal Reserve board suggest they see the US acting within emerging common practices on the regulation of climate-related financial risks.
Sarah Bloom Raskin, Biden’s pick for vice chair of supervision, co-authored a report by the Ceres thinktank in 2020 which called on regulators to take a coordinated approach towards addressing the systemic threat posed by the climate crisis to US financial stability. It said action is necessary to correct the “continued market mispricing of climate factors in the face of exacerbating risks”.
It included a series of proposals, such as integrating climate risks into supervisory expectations, developing climate scenario analyses, and enhancing climate disclosure rules. These measures are closely aligned with recommendations issued by the Network for Greening the Financial System (NGFS), a group of 83 central banks and supervisors with members from every G20 economy except Saudi Arabia.
Nevertheless, Raskin has come under criticism from some US lawmakers who have sought to suggest that she intends for the Fed to stray from its core mandate and become involved in allocative decisions which are political in nature. Chair Jerome Powell and Lael Brainard, Biden’s nominee for the other vice chair vacancy, have been probed along similar lines, although all nominees have stressed they believe climate risks pose a serious threat to the financial system which it is the Fed’s responsibility to address.
A memo published this week by Better Markets compares Raskin’s views on climate with those of Powell, the Trump-appointed former supervision vice chair Randy Quarles, and leaders in the finance industry. It finds that her views are fully aligned with Powell and Quarles, and suggests the attacks on her have been based on a distorted or inaccurate interpretation of comments he has made.
The criticisms of Raskin often focus on her statements regarding the Fed’s emergency loan programmes, or on her support for climate-related scenario analyses. Regarding the former, Raskin published an op-ed in 2020 questioning the Fed’s decision to buy up bad debt from fossil fuel companies as part of its bid to backstop firms which were at risk of failure due to Covid-19.
A recent article in The Hill seeks to reassure conservative lawmakers that Raskin was actually critiquing a situation where the Fed was inappropriately supporting certain companies. It suggests the Fed was taking on bad investments which would not deliver the stated objectives of the programme in question.
“Far from asking to ‘exclude’ the oil industry from the Fed’s lending, she asked why the Fed went out of its way to bring in firms that were contrary to the programme’s intent and a plainly bad investment,” wrote Max Moran, a researcher at the Revolving Door Project.
Several other central banks are also questioning the prudence of supporting fossil fuels via their monetary policy operations, given the growing evidence that the market is failing to accurately price in the climate risks associated with such assets. The Bank of England recently recalibrated its corporate bond purchase scheme with the aim of favouring greener companies, and the European Central Bank is set to include climate criteria in its own bond buying programme.
Senator Pat Toomey has also criticised the Fed’s plans to begin developing climate scenario analyses. This is something which Raskin has expressed support for, as have Powell and Brainard. Toomey said in a recent Senate hearing that he feared such an exercise was a precursor to direct capital away from carbon-intensive industries, and that the Fed should not be singling out climate change from among the other risks that banks face.
Toomey is out of step with the consensus view of the US’s top financial regulators, which is that climate change poses a priority risk to the financial system. Climate-related financial risks are thought to pose particular challenges because of their far-reaching impact, unforeseeable nature and irreversibility.
An NGFS survey of 31 central banks and supervisors published last year suggests Toomey’s position is also at odds with that taken by most of the Fed’s counterparts. Four banks said they had completed and published specific climate scenario exercises, with a further 21 due for completion in the next 12 months.
This page was last updated February 3, 2022
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