Climate change a growing concern for the Fed as candidates are heard

How far the Federal Reserve can go to force banks to factor the consequences of climate change into their lending policies could be the focus of a Senate hearing on Thursday on the nominations of Sarah Bloom Raskin and two economists to the influential Fed Board of Governors.

The Fed is already moving towards analyzing the risks facing banks due to rising temperatures and changing weather patterns. What many in the oil and gas industry fear is something bigger: that the Fed may eventually take action to discourage banks from lending to energy companies – the first time, they say, that the central bank has acted to disadvantage a specific industry group.

A host of trade associations and business groups wrote to the Senate Banking Committee ahead of the hearing, expressing concern over the nomination of Bloom Raskin as Vice Chairman of Fed Oversight, the member of the board of directors that directs its regulation of banks. Bloom Raskin has openly stated that climate change poses risks to the economy and the financial system and that regulators should consider these risks in their oversight.

For now, most groups have stopped opposing his appointment. The Chamber of Commerce, in a letter to the committee last week, urged senators to simply “raise several important issues” during the hearing.

Her supporters argue that Bloom Raskin is highly qualified and that her views on climate and the Fed are similar to those expressed by Chairman Jerome Powell.

“I don’t see his positions as radical or out of the mainstream,” said Cam Fine, a former lobbyist for small banks.

Bloom Raskin, who previously served on the Fed’s seven-member board from 2010 to 2014, was later chosen by President Barack Obama to serve as deputy treasury secretary.

On Thursday, the Senate committee will also consider the nominations of Lisa Cook, a Michigan State professor of economics and former Obama White House staffer, and Philip Jefferson, an economist and dean of Davidson College. Cook would be the first black woman to serve on the Fed’s board. Jefferson would be the fourth black man in the Fed’s 108-year history.

Raskin’s opponents have focused on comments she made suggesting regulators should discourage banks from lending to oil and gas companies. Two years ago, in a New York Times opinion column, Raskin called oil and gas a “dying” industry. She then criticized the Fed’s willingness to support loans to fossil fuel companies in its efforts to strengthen the financial sector in the depths of the pandemic recession.

And at a conference last year, Bloom Raskin suggested that financial regulators should support “a quick, orderly, and just transition away from high-emitting assets.”

Despite opposition from Republicans, most observers say it will likely be confirmed by the full Senate, which could vote as early as this month.

On Monday, 13 trade associations wrote to Sen. Sherrod Brown, the Ohio Democrat who heads the Banking Committee, to “express our concerns” about Bloom Raskin’s views on climate change.

“Ms. Bloom Raskin’s statements suggesting that financial regulations should be used as an instrument to guide climate change policy will only increase energy costs and make America more dependent on energy sources. foreign,” said Liz Bowman, spokeswoman for the American Exploration and Production Council, which led the letter.

A larger group of 41 energy-focused trade groups went further last week and urged committee members to reject Bloom Raskin’s nomination.

Senator Pat Toomey of Pennsylvania, the committee’s top Republican, echoed those concerns in a letter to Biden in which he said Raskin “also advocated for the Federal Reserve to pressure the banks to stifle the credit to traditional energy companies”.

A White House official, who insisted on anonymity to discuss the administration’s views, took issue with Toomey’s characterization and said Bloom Raskin was “strongly opposed to the Federal Reserve allocating credit by sector or prevents sectors from accessing credit”.

The rising profile of climate change as an issue for the Fed to consider reflects growing pressure on the central bank to tackle issues that have traditionally been beyond its purview to maintain the low unemployment and price stability. Powell has increasingly embraced this shift, but not to the extent that Bloom Raskin did or that many environmentalists would prefer.

During his confirmation hearing in January, Powell said: “Our role on climate change is limited but it’s important, and it’s about making sure the banking institutions we regulate understand their risks and can manage them. “.

Environmental advocates argue that climate change falls squarely within the Fed’s legal mandate to keep the financial system “safe and sound”. Banks could incur damaging losses on their commercial and residential real estate loans due to increased weather-related damages. And if businesses and consumers move ever further away from fossil fuels, driving down the price of oil and gas, they say it could lead to losses on loans to oil and gas drillers.

Early last year, the Fed became the latest major central bank to join the Network for the Greening of the Financial System, an international group focused on global warming and financial regulation.

“It’s been a train that’s been running at the Fed for quite some time,” said Sarah Dougherty, director of the NRDC’s Green Finance Center and former staffer at the Federal Reserve Bank of Atlanta.

Lael Brainard, a Fed governor whom Biden appointed to the central bank’s No. 2 job, said last fall that the Fed was considering conducting a “climate scenario analysis,” which would involve modeling the impact of climate change on the financial system. During his confirmation hearing last month, Brainard said analyzing the data was different from telling banks how they should lend.

“We don’t tell banks which sectors to lend to,” she said. “We just ask them to manage the risks.”

Some who support Bloom Raskin’s nomination have suggested that some critics may refrain from publicly opposing his nomination because they’ve calculated that an all-out fight could be a losing battle.

“The Fed is clearly heading in that direction one way or the other,” said Adam Jentleson, a former senior Senate official who coordinates support for Biden’s three nominations. “What’s the point of starting a huge fight over this if you’re just going to get another candidate who may not have made the same statements on the record but has the same opinions?”

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