Bid to nominate Sarah Bloom Raskin as Vice President of Supervision at the Fed

Sarah Bloom Raskin, in her role as Deputy Treasury Secretary at the Treasury Department in Washington, October 2, 2014.

Yuri Gripas | Reuters

President Joe Biden will nominate Sarah Bloom Raskin as the next Vice President of the Federal Reserve for oversight, arguably the nation’s most powerful banking regulator, according to people familiar with the matter.

Biden will also nominate Lisa Cook and Philip Jefferson to serve as governors of the Federal Reserve, according to the people, who asked not to be named to speak freely.

Each nominee will have to deal in the coming weeks with question papers from the Senate Banking Committee, the congressional body responsible for overseeing presidential appointments to the central bank. Should the Senate confirm their nominations, Cook would be the first Black woman to serve on the Fed’s board, while Jefferson would be the fourth Black man to do so.

That committee held a nomination hearing on Tuesday for Fed Chairman Jerome Powell, who chose Biden to nominate for a second term. It held a similar hearing Thursday for Fed Governor Lael Brainard, who elected Biden as the next vice president of the central bank.

In electing Raskin as vice president of oversight, Biden is trying to live up to Democrats’ promises to strengthen laws enacted in the aftermath of the financial crisis and restore aspects of a rule named after former Fed Chairman Paul Volcker who had limited the ability of banks to trade for their own profits.

Raskin has experience with the Fed and served as governor of the central bank from 2010 to 2014 before serving as deputy secretary of the Treasury under the Obama administration. She is married to Rep. Jamie Raskin, D-Md.

Powell and Brainard are both expected to clear the Senate without fanfare and with bipartisan support, but Raskin, Cook and Jefferson could see tougher confirmation chances. Pennsylvania Republican Senator Pat Toomey, the ranking member of the Banking Committee, was quick to pan Biden’s final choices.

“Sarah Bloom Raskin has specifically called on the Fed to pressure banks to exclude credit to traditional energy companies and exclude those employers from all Fed emergency lending facilities,” he said in a statement Thursday night. “I have serious concerns that they would be abusing the Fed’s narrow legal mandates on monetary policy and banking supervision to actively engage the central bank in capital allocation.”

“I will closely investigate whether Ms. Cook and Mr. Jefferson have the necessary experience, judgment and policy figures to serve as Fed administrators,” he added.

While Jefferson’s name came up more recently in closed – door discussions to serve as governor, Cook’s nomination was well telegraphed. CNBC reported in May that it was the best choice of Senator Sherrod Brown, the chairman of the Banking Committee and an Ohio Democrat, to serve as governor.

“With these nominees, President Biden is showing the country what a Federal Reserve looks like on the side of workers and their local communities,” Brown said in a statement Friday morning. They will “bring important perspectives to the Federal Reserve Board on the economic problems facing women, black and brown workers, and rural and industrial communities across the country.”

Cook is Professor of Economics and International Relations at Michigan State University. She is also a member of the steering committee at the Center for Equitable Growth, a progressive think tank based in Washington that counts several of Biden’s top economists among its alumni. She also serves as a senior economist on the Obama administration’s Council of Economic Advisors.

Jefferson, meanwhile, is vice president of academic affairs and dean of faculty at Davidson College. His decades-long career in academia has focused on labor markets and poverty.

His notable work includes a 2005 study evaluating the costs and benefits of monetary policy that promotes a “high-pressure economy” in which the Fed facilitates access to cash and lower interest rates to stimulate tighter labor markets.

He and other economists, including Brainard, have argued – except in general and exceptional economic circumstances – that the added benefits of lower rates on maximum employment are potentially worthwhile for warmer inflation.

Race and regulation

Since leaving the government, Raskin has been urging the Fed and other financial supervisors to take a more proactive role in tackling the financial risks posed by climate change.

“While none of its regulatory bodies is specifically designed to mitigate the risks of climate-related events, each has a mandate broad enough to cover those risks within the framework of the instruments already given to it by Congress, “Raskin wrote in September.

“In light of the unpredictable – but clearly intensifying – effects of the changing climate on the economy, U.S. regulators will need to leave their comfort zone and act early before the problem escalates and becomes even more expensive to address,” she added.

Former Vice President of Supervision Randal Quarles, who recently left the Fed, has played a key role in reducing capital requirements for US banks with less than $ 700 billion in assets and relaxing the Volcker Rule’s control rules for trades. by JPMorgan Chase, Goldman Sachs and other investment banks.

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Fed officials for a simpler regulatory stance argue that the sector is well capitalized and does not need some of the more restrictive measures put in place in the wake of the crisis.

Many Democrats, including Massachusetts Senator Elizabeth Warren, have backed down, saying rollbacks leave the banking sector more vulnerable to shocks and responsible for taking too many risks.

Inflation hit

The nominations come at a precarious time for the Fed, which has begun in recent weeks to reduce its easy monetary policy in the face of recurrence of employment and the highest level of year-on-year inflation since 1982.

In times of normal economic activity, the Fed adjusts short-term interest rates to maximize employment and stabilize prices.

If the Fed wants the economy to warm up, it could cut borrowing costs to boost the housing market and broader economic activity such as employment. But if it’s worried about an overheating economy or unruly inflation, it could increase interest rates to make lending more expensive.

In times of economic need, the central bank can also apply broader powers and buy large amounts of bonds to keep borrowing costs low and stimulate financial markets with easy access to cash. It did so in 2020 with the advent of the Covid-19 pandemic, a movement that worked to pacify traders and calm companies concerned about liquidity.

Bond yields fall as their prices rise, which means that those purchases are forced to lower rates. But ending those kinds of liquidity measures in times of need – and the prospect of higher rates – could have the opposite effect on markets.

The release of the last minutes of the Fed meeting earlier in January, which prompted several officials to cut the balance sheet and raise rates quickly, led to a sale on Wall Street.

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