Sarah Bloom Raskin is championed by Democrats eager to install a bank regulator with a focus on climate change, and criticized by Republicans who don’t believe climate change belongs in conversations about the financial system or economic stability.
Raskin’s nomination comes at a crucial time for Fed policymaking and the Biden administration, which is seeking to elevate climate change in its broader economic agenda.
Democrats and many economists argue that the Federal Reserve is behind its international peers when it comes to incorporating climate risks into its bank oversight. They want to see the Federal Reserve thoroughly evaluate how more intense and frequent climate disasters, from wildfires to hurricanes, could harm the health of banks or ricochet through the financial system. They are also hoping the Fed will move toward encouraging banks to reduce their exposures to climate risks.
Raskin’s proponents believe she would take the Fed in that direction.
Yet that’s why Raskin’s nomination has triggered enormous backlash from Republicans and business lobbying groups, who oppose financial regulators tackling climate change, or viewing it as a fundamental risk to the economy.
“I have serious concerns that she would abuse the Fed’s narrow statutory mandates on monetary policy and banking supervision to have the central bank actively engaged in capital allocation,” Sen. Patrick J. Toomey of Pennsylvania, the top Republican on the Senate Banking Committee, said in a statement to The Post. “Such actions not only threaten both the Fed’s independence and effectiveness, but would also weaken economic growth.”
Somewhere in the middle are questions about what a climate-change-focused banking cop could actually put into practice at the Fed, and how Raskin’s likely confirmation could quicken the central bank’s moves in that direction.
“The Fed has been slow in recognizing the ways climate-related risks can well give rise to systemic risk,” said Kathryn Judge, an expert on financial regulation at Columbia Law School. “It leaves meaningful flexibility for whoever comes in as vice chair for supervision, and certainly for someone who has been as vocal about these issues as Sarah Bloom Raskin … to help facilitate the transitions that lie ahead.”
Over the past few months, Raskin emerged as the White House’s strongest candidate to be the Fed’s vice chair for supervision, a role Congress created in 2010 as part of the Dodd-Frank Act and a sweeping overhaul of Wall Street oversight.
The job is deeply enmeshed in the legal minutiae of big banks. And as the seat opened last year, Democrats hoped Biden’s nominee would help the Fed move from researching the ways climate change threatens financial stability to implementing tools to help banks measure and mitigate their exposure.
They found their match in Raskin, who served as deputy secretary of President Barack Obama’s Treasury Department from 2014 to 2017, and as a governor on the Fed board from 2010 to 2014.
In her writing and public remarks, Raskin has highlighted the economic and financial stability risks tied to climate change. In a column published in September, she wrote that “financial regulators must reimagine their own role so that they can play their part in the broader reimagining of the economy.”
“If we ignore climate change, we in essence destroy the economy,” Raskin told lawmakers in March 2020, when the coronavirus pandemic sent U.S. markets into free fall and yanked the country into recession. “We are seeing … an inability to actually have smooth transitions around what should be the kind of shocks that the economy gets periodically.”
Yet Raskin’s candidacy has sparked an intense opposition campaign from Republicans who say it is not the Fed’s role to oversee climate issues. Toomey has long warned the Fed about straying beyond its narrow mandate. On climate issues, he routinely argues that a severe weather event has never caused a major financial institution to fail.
In a letter to the Senate Banking Committee last week, the U.S. Chamber of Commerce urged lawmakers to question Raskin about her idea “to transition financing away from the fossil fuel industry.” The group cited an editorial Raskin wrote last year for the New York Times, in which she criticized the federal government for using lending programs Congress designed as a lifeline to companies harmed by the pandemic to bail out oil and gas companies.
“Bank regulators put policies in place to ensure the safety and soundness of those institutions,” said Tom Quaadman, an executive vice president at the Chamber. “It’s not the job of those agencies to favor one industry over another.”
In several editorials and speeches reviewed by The Post, Raskin advocated for a transition away from “high-emission and biodiversity-destroying investments” but did not call for the government to cut off financing or credit to any specific sector.
The Fed, for its part, has consistently said its job is not to tell banks whom they can or cannot lend to. Rather, Fed leaders say it is their duty to understand even the smallest risks that can jeopardize the financial system and overall economy.
Last year, 20 individual billion-dollar disasters ravaged the nation, including tornadoes, floods, fires and hurricanes, according to the National Oceanic and Atmospheric Administration.
Beyond the physical risks associated with disasters, activists and experts say climate change poses “transition risks” associated with the shift to a low-carbon economy. As governments around the world roll out policies aimed at reducing carbon emissions and boosting renewable energy, banks with significant investments in fossil fuels could end up with stranded assets.
Other central banks have focused on the risks of climate change more forcefully than the Fed. The European Central Bank and Bank of England, for example, already evaluate climate risk in tests that aim to ensure the health and stability of banks.
“We need to do some of these things in the United States. We’re way behind the rest of the world,” said David Arkush, managing director of Public Citizen’s climate program.
In the past 15 months, the Fed has joined an international group of central banks focused on climate risk, included analysis on climate change in its financial stability report, and established an internal committee focused on climate and bank supervision.
More recently, Fed leaders including Chair Jerome H. Powell and Lael Brainard have said the Fed is developing exercises that can help banks measure, monitor and manage their own vulnerabilities to the risks of climate change. Those are distinct from the Fed’s formal stress tests, which the largest banks undergo to prove they could endure a hypothetical financial crisis without a bailout or being forced to stop lending. The exercises haven’t been implemented yet.
“This is not an issue about advocating climate change,” Joseph E. Stiglitz, a Nobel Prize-winning economist at Columbia University, who has worked with Raskin on climate issues. “If you give any credence to the chance that there is this risk … and one that would have dramatic changes for asset prices, it would irresponsible not to include that in the stress tests, and it would be irresponsible not to have regulatory frameworks that require incorporation of those risks.”
But those tools are not universally embraced. In a statement, Frank Macchiarola, senior vice president of policy, economics and regulatory affairs at the American Petroleum Institute, said the group was “committed” to working with Raskin but that it has concerns.
“We believe that climate-related stress testing and restrictions on capital could undermine our industry’s efforts to deliver affordable and reliable energy while addressing the climate challenge,” Macchiarola said.
Many of the largest fossil fuel giants, under pressure from shareholders and global regulators, have acknowledged the threat of climate change and pledged to reduce their emissions. A database compiled by the investment bank Raymond James counted 19 oil companies that have committed to bringing their operations to “net zero” greenhouse gas emissions by 2050, though most of these pledges exclude the substantial emissions created by customers using their products.
Kathleen Sgamma, the president of Western Energy Alliance, one of several fossil fuel lobbying groups opposing Raskin’s confirmation, said the idea of reassessing the value of investments to reflect climate risks is driven by political motivations, not financial realities. She said oil and gas companies will continue to benefit from rising demand for decades, making climate risks insignificant to today’s investor.
“Your retiree today or your worker even starting out today is safe investing in oil and natural gas because in their lifetime there is still going to be a huge need and use of oil and natural gas,” Sgamma said.
Lawrence Baxter, a professor who teaches a course with Raskin at Duke University School of Law, said Raskin’s opponents misrepresent her arguments. He said that while Raskin has criticized the federal government for bailing out oil and gas companies during the pandemic, she has not called for the Fed to cut off lending to oil and gas companies in general.
“I’ve seen those out-of-context quotes that she will order banks to stop lending to the fossil fuel industry,” Baxter said. “In my experience that is sheer nonsense.”
Raskin served as commissioner of financial regulation for the state of Maryland during the Great Recession. She is a distinguished fellow of Duke Law School’s Global Financial Markets Center.
Steven Mufson and Aaron Gregg contributed to this report.