An important role at the Fed, one you likely have never heard of, remains empty and is holding up climate action at the Fed. As many of us had been eagerly awaiting, President Biden nominated the Federal Reserve Chair, renominating Jerome Powell to serve a second 4-year term at the top of this important institution, following his able leadership through the COVID crisis, starting the Fed’s work on climate considerations and reorienting the Fed’s dual mandate to give higher priority to employment and workers. The President also nominated the thoughtful, smart vocal climate hawk Dr. Lael Brainard to the Vice Chair of the Board. Her statements and speeches have laid the groundwork for Fed action on climate change. But the president left the Vice Chair for Supervision role empty—a very important role for the Fed to move forward with concrete actions, particularly to protect people from financial risks linked to climate change.
These appointments are a huge step forward for clarity of Fed leadership. The Chair and Vice Chair for the Board positions were slated to end their current appointments a month into the new year. Biden did not want any lapse in leadership—a crucial point. But—and this is a BIG issue for managing climate risk—there is already gap at Board leadership in the Vice Chair for Supervision (VCS). Randal Quarles’ term as VCS ended Oct 13th and the position has been empty since then. There is not even an interim leader of Supervision. Instead, Powell has put this authority to the whole Board of Governors, through its committee structure, making changes far more challenging. The openings that Powell and Brainard have been nominated for would have been vacant in about 6 weeks. The VCS position already is empty and is holding up climate action.
The first concrete action from the Fed will be and needs to be issuing Supervisory Guidance, as we explained here and sent a letter to the Fed and other regulators back in Sept. They must craft supervisory guidance informing their banks (and bank examiners) with recommendations for evaluating and addressing climate risk in their portfolios and operations. The OCC has committed to putting out Supervisory Guidance by the end of the year. The lack of a VCS is so far holding up progress to do the same at the Fed and putting banks, the financial system, the economy and your savings at risk.
Additionally, there are three of the seven Board of Governors’ seats either open or coming open in the next 6 weeks. The president, to fulfill his duty to protect the American people from harm, needs to fill all these openings to both give the full clarity on leadership and to ensure the leaders for this essential economic and financial system will take action on climate risk. The longer this is delayed, the more we all are at risk of another 2008-level financial crisis. The Fed has the tools to start protecting the financial system, if it has the right people in place to start using them.
The president should nominate a qualified expert as the next Vice Chair for Supervision and the sooner the better. This can play a key role in reducing the financial risks we face from the climate crisis.