CHRISTOPHER RUGABER – AP Economics Writer
WASHINGTON (AP) — How far the Federal Reserve can go to compel banks to consider the consequences of climate change in their lending policies could take center stage at a Senate hearing Thursday on the nominations of Sarah Bloom Raskin and two economists to the Fed’s influential Board of Governors.
The Fed is already working towards analyzing the risks banks face due to rising temperatures and changing weather patterns. What many in the oil and gas industry fear is something more far-reaching: That the Fed may eventually take steps to discourage banks from lending to energy companies — what they say would be an unprecedented move to disadvantage a specific industry.
A number of trade associations and business organizations have written to Senate Banking Committee to express concern about the nomination to the Fed’s vice-chair of supervision, which is the board member responsible for its regulation of banks. Bloom Raskin is clear in her belief that climate changes pose risks to the economy as well as the financial system. Regulators should consider these risks when overseeing the banks.
For the moment, most groups have not yet voted against her nomination. The Chamber of Commerce, in a letter to the committee last week, urged the senators to simply “raise several important issues” during the hearing.
Her supporters argue that Bloom Raskin has a high degree of qualifications and that her views on climate change and the Fed are similar those of Chair Jerome Powell.
“I don’t see her positions as being 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 subsequently chosen by President Barack Obama to serve as a deputy Treasury secretary.
On Thursday, the Senate committee is expected to consider the nominations for Lisa Cook, an economist at Michigan State University and a former staffer at the Obama White House. Philip Jefferson, an economist at Davidson College, and Philip Jefferson. Cook would be the first Black woman on the Fed’s board. Jefferson would be fourth black man in Fed’s 108 year history.
Raskin’s critics have focused on comments she made suggesting that regulators should discourage banks lending to oil-and-gas companies. Two years ago, in an opinion column in the New York Times, Raskin called oil and gas a “dying” industry. She went on to criticize the Fed’s willingness to support lending to fossil fuel companies in its efforts to bolster 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 rapid, orderly and just transition away from high emission assets.”
Despite the opposition of Republicans, most observers believe that she will be confirmed in the full Senate, which could vote as soon this month.
On Monday, 13 trade associations wrote to Sen. Sherrod Brown, the Ohio Democrat who leads the Banking Committee, to “express our concerns” with Bloom Raskin’s views on climate change.
“Ms. Bloom Raskin’s statements suggesting financial regulations should be used as an instrument to direct climate change policy will only raise energy costs and make America more dependent on foreign sources of energy,” said Liz Bowman, a spokeswoman for the American Exploration and Production Council, which spearheaded the letter.
A larger group of 41 trade groups that are energy-focused urged members of the committee to reject Bloom Raskin’s nomination last week.
Sen. Pat Toomey of Pennsylvania, the senior Republican on the committee, echoed these concerns in a letter to Biden in which he asserted that Raskin “has also advocated for the Federal Reserve to pressure banks into choking off credit to traditional energy companies.”
A White House official, who insisted on anonymity to discuss the administration’s views, disputed Toomey’s characterization and said Bloom Raskin is “firmly opposed to the Federal Reserve allocating credit by sector or choking off sectors from access to credit.”
The Fed’s increasing attention to climate change is a reflection of the increasing pressure on it to address issues that were previously outside its scope. Powell is increasingly accepting this shift.
At his confirmation hearing in January, Powell said, “Our role on climate change is a limited one but it is an important one, and it is to assure that the banking institutions that we regulate understand their risks and can manage them.”
Environmental advocates argue that climate change clearly fits in the Fed’s legal mandate to ensure the “safety and soundness” of the financial system. Increased weather-related damage could cause banks to suffer severe losses on loans to residential and commercial property. Businesses and consumers could also lose their loans to oil and natural gas drillers if they shift away from fossil fuels.
The Fed was the first major central bank to join the Network for the Greening of the Financial System (an international group that focuses on global warming and financial regulation) in the latter part of last year.
“This is a train that has been moving at the Fed for awhile,” said Sarah Dougherty, director of the NRDC’s Green Finance Center and a former staffer at the Federal Reserve Bank of Atlanta.
Biden has appointed Lael Brainard to the No. 1 spot at the central banks. He is a Fed governor. 2 post, said last fall that the Fed is considering conducting “climate scenario analysis,” which would involve modeling the impact of climate change on the financial system. Brainard stated that analyzing data was not the same as telling banks how to lend.
“We don’t tell banks what sectors to lend to,” she said. “We just ask them to risk manage.”
Some who supported Bloom Raskin’s nomination suggested that some critics might be keeping their distance from her nomination because they know that an all out fight could prove to be futile.
“The Fed is clearly headed in this direction one way or the other,” said Adam Jentleson, a former top Senate aide who is coordinating support for Biden’s three nominations. “What’s the point of picking a huge fight over this if you’re just going to get another nominee who may not have made the same statements on the record but has the same views?”
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