In a sign of these bitterly partisan times, the political right has put a target on the back of Sarah Bloom Raskin, President Biden’s standout candidate to become vice chairman of the Federal Reserve Board. On February 15, Republicans on the Senate Banking Committee blocked a vote on all five pending Fed nominees, but the clear target was Ms. Raskin. The next day the editors of the journal explained she was “unsuitable for the Federal Reserve”.
I beg to differ. Ms. Raskin is getting closer to a perfect fit. Rejecting her nomination would be a grave mistake for the Senate and a real loss for the Fed and the country. (Disclosure: Ms. Raskin is both a personal friend and an occasional work colleague.)
The case against Ms. Raskin is flimsy. It mainly stems from their declarations as a private individual that climate change is a serious problem that poses a multitude of business risks, including for financial institutions. Does anyone doubt that? Many others, including Fed Chair Jerome Powell and the Bank for International Settlements, have expressed similar views. Should banking regulators remove damage from climate change from their risk list?
Ms Raskin’s case is strong, starting with her impressive credentials. When Mr. Biden named 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 Financial Regulatory Commissioner from 2007 to 2010, as Fed Governor from 2010 to 2014 and as Deputy Treasury Secretary from 2014 to 2017. Impressive credentials – far more impressive than most Fed governors when first confirmed. There is no learning curve for them to climb.
The Journal’s editorial board and some senators have slandered her character, but for very little reason. She allegedly used improper influence to help the Reserve Trust Co. (where she was once a director) get a main account with the Fed. But consider this: Since trust companies are banks, many of them take deposits. And banks that take deposits routinely run through the Fed. So no special influence was required. A co-founder and former chairman of the bank, Dennis Gingold, has specified unequivocally that Ms. Raskin played “no role at all” in getting Fed approval. So no particular influence was exercised.
Ms Raskin’s association with the Reserve Trust ended when the bank was bought and the transformation into a fintech company began. This change in business models explains how a fintech company ended up with a master account with the Fed.
But back to the substantive charge that as vice chair of the board, she would, as the Journal put it, “redirect capital from fossil fuels to green energy.” Ms Raskin told the Banking Committee that she would not attempt this: “It is inappropriate for the Fed to make credit decisions and allocations based on picking winners and losers.” In any event, the Fed has no such authority. A seasoned public servant like Ms. Raskin knows how important it is for any government agency to stay within its legal boundaries.
While the Vice Chair of Oversight is a key member of Financial Oversight, she is just one of many. Even if the Fed wanted to impose rules on lending, which it doesn’t do, it couldn’t do so unilaterally. In addition, Ms Raskin is nominated as Vice Chair, not Chair. Mr. Powell will outperform her, and the Fed usually follows her leader. I doubt there would ever be a test of wills between Ms. Raskin and Mr. Powell. But if it were, Mr. Powell would win.
Think again about the content of the problem. Is it wrong to worry about the safety and health of banks that have concentrated risk in lending to fossil fuel companies with potentially bleak futures? Certainly not. Concentrated risk has always been a concern of banking regulators, no matter where the concentration is.
Climate change is the existential issue of our time. Nothing else poses a comparable threat to the continued existence of human life on the planet. While no one knows the timing or the details of the shrinking of the fossil fuel industries, it will – it must – happen. Huge sums of money are randomly earned and lost by the winners and losers in an epic battle for energy supply.
Private markets and elected governments will play important roles in this struggle. Central banks will play a tiny role in comparison. But should banking regulators turn a blind eye to the financial risks involved?
Mr. Blinder, Professor of Economics and Public Affairs at Princeton, was Vice Chairman of the Federal Reserve from 1994 to 1996.
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https://www.wsj.com/articles/sarah-bloom-raskin-fed-partisan-federal-reserve-nomination-private-citizen-declarations-climate-risk-biden-appointee-11646258642 Sarah Bloom Raskin is part of the Fed