Fed Nominations: Biggest Deal You Likely Have No Idea About
President Biden is nominating 3 very experienced people to the Federal Reserve Board. The most influential position is for Sarah Bloom Raskin to be the Vice Chair for Supervision: and she and the rest of the Fed are poised to act on climate risk as soon as she is confirmed.
This is the role I have been, well, really annoying about to both my work colleagues and my poor husband. The Vice Chair for Supervision (VCS) position has been vacant since October and that vacancy is holding the Fed up on many issues, including the Fed taking its first concrete steps on climate change. They have done amazing research, Chair Powell rightly noted that climate considerations will be a priority of his next term as Chair if confirmed, and the Fed joined the Network for Greening the Financial System (NGFS) to be part of the international group of central banks working to tackle climate change. They are moving in the right direction. But, they have not taken concrete steps, yet.
As we have been talking about for a few months, issuing supervisory guidance related to climate risk is a key early step for bank regulators to take to avoid a 2008-level financial crisis. The OCC issued guidance for comment last month. It is a huge step. Fed Chair Jerome Powell and vice chair nominee Lael Brainard have both indicated they think that the Fed is likely to issue its own guidance, BUT there was no one in the VCS spot to take the lead on that. With anyone in that VCS spot, the Fed would likely finally move. With Sarah Bloom Raskin in that seat, the movement seems nearly assured. With her regulatory background, research and earlier work as a Fed Governor as the basis, she has noted (here and here) that climate risk must be considered in bank oversight for the Fed to meet its congressionally given mandates. We agree and look forward to the Fed taking the next step on climate risk.
I don’t want to ignore the great economists Lisa Cook and Philip Jefferson that have also been nominated to the Federal Reserve Board of Governors. Their research and experience (both have had positions within the Federal Reserve System before, on top of all their other deep experience) will add great perspective to the Fed at a time it is walking a delicate balance between supporting growth and workers now and managing long-term price stability.
All 3 nominations will add to the deep talent and expertise at the Federal Reserve. Well done, Mr. President.