In a sign of these spiteful partisan times, the political right has drawn a target on the back of Sarah Bloom Raskin, President Biden’s superb candidate to become the Federal Reserve’s Vice Chairman for Oversight. On Feb. 15, Republicans on the Senate Banking Committee blocked a vote on the Fed’s five pending nominees, but the clear target was Ms. Raskin. The next day, the Journal’s editorial board declared her “unfit for the Federal Reserve.”
I do not agree. Ms. Raskin is getting closer to being a perfect fit. Rejecting his nomination would be a terrible mistake for the Senate and a real loss for the Fed and the country. (Disclosure: Ms. Raskin is both a personal friend and occasional professional colleague.)
The case against Ms. Raskin is fragile. This stems primarily from her statements, when she was a private citizen, that climate change is a serious issue that poses a wide variety of business risks, including for financial institutions. Does anyone doubt it? Many others, including Fed Chairman Jerome Powell and the Bank for International Settlements, expressed similar sentiments. Should banking regulators strike climate change-related losses from their list of risks?
Ms. Raskin’s case is powerful, starting with her impressive credentials. When Mr. Biden nominated her, I practically jumped for joy that someone with her stellar resume would take the job.
The position requires expertise in financial regulation. Ms. Raskin served as Maryland’s Commissioner of Financial Regulation (2007-10), Governor of the Fed (2010-14) and Assistant Secretary of the Treasury (2014-17). Impressive credentials – far more impressive than those of most Fed governors when they were first confirmed. For her, there will be no learning curve to climb.
The Journal’s editorial board and some senators slandered his character, but for very little reason. She allegedly exerted undue influence to help the Reserve Trust Co. (where she was once a director) secure a lead account at the Fed. But consider: because trust companies are banks, many of them take deposits. And the deposit banks regularly compensate through the Fed. No special influence was therefore necessary. A co-founder and former chairman of the bank, Dennis Gingold, has said unequivocally that Ms Raskin played “no role” in securing the Fed’s approval. No particular influence was therefore exercised.
Ms Raskin’s association with the Reserve Trust ended when the bank was purchased and began to transform into a fintech company. This change in business models explains how a fintech company ended up with a main account at the Fed.
But back to the substantive accusation that, as vice president of oversight, she, as the Journal puts it, would “redirect capital from fossil fuels to green power.” Ms Raskin told the banking committee she would not try to do that: “It is inappropriate for the Fed to make credit decisions and allocations based on picking winners and losers.” Anyway, the Fed has no such authority. An experienced public servant like Ms. Raskin understands how important it is for every government agency to respect its legal limits.
While the VP of Oversight is an important member of the financial regulatory community, she is only one of many. Even if the Fed wanted to enact credit allocation rules, which it does not, it could not do so unilaterally. In addition, Ms. Raskin is appointed vice-president and not president. Mr. Powell will outperform her, and the Fed normally follows its leader. I doubt it comes down to a test of wills between Ms. Raskin and Mr. Powell. But if it did, Mr. Powell would win.
Think back to the root of the problem. Is it wrong to worry about the safety and soundness of banks that have concentrated risk in lending to fossil fuel companies with potentially bleak futures? Surely not. Concentrated risks have always been a concern of banking supervisors, regardless of their degree of concentration.
Climate change is the existential issue of our time. Nothing else poses a comparable threat to the continuation of human life on the planet. While no one knows the timing or the details of the contraction of fossil fuel industries, it will happen – it has to happen. As it happens, huge sums will be won and lost by winners and losers in an epic struggle for energy supply.
Private markets and elected governments will play a major role in this fight. Central banks, by comparison, will play tiny roles. But should banking supervisors turn a blind eye to the related financial risks?
Mr Blinder, a professor of economics and public affairs at Princeton, served as vice chairman of the Federal Reserve from 1994 to 1996.
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