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The Democrats want to take action against Wall Street. Guess who’s in the way.

The result is that regulators have done little to reverse what many Democrats saw as a weakening of the guard rails around banks during the Trump administration. Progressive priorities such as B. making mergers more difficult for banks or pressure on financial institutions to prepare for climate change are only moving slowly. And at a particularly risky moment for the financial system, as banks grapple with rising inflation, rising interest rates and disruption from the war in Ukraine, there is not a meaningful person on the Fed’s board.

“This is a similar moment to the late 1990s and early 2000s with huge technological changes in the financial sector,” Omarova said in an interview, referring to the years leading up to the 2008 financial crisis. because it has not been adequately coordinated and carefully monitored.”

The administration’s difficulties in getting bank policeman candidates through a Democrat-controlled Senate underscores fault lines within the party over its approach to financial regulation. In 2018, a full third of the Democratic faction voted in favor of bipartisan legislation aimed in part at slashing regulations on regional lenders introduced in the wake of the financial crisis, a bill fiercely opposed by progressive Democrats as a giveaway to larger banks.

Now, Biden’s picks face new battle lines over emerging issues such as government’s role in regulating cryptocurrencies and other financial technologies, and how banking regulators should address climate change risks, issues that have bogged down both potential and official candidates.

“It raises real questions about how narrow the road is for someone to get called into these roles,” said Kathryn Judge, a professor at Columbia Law School.

Fed Chair Jerome Powell, asked at a news conference last week how the central bank is handling regulation in the absence of an oversight vice chair, said: “We’re handling the situation we have.”

A White House official called it “disappointing” that there are vacancies in the positions of currency controller and Fed vice chairman for oversight “at this important juncture in our economic recovery.”

“It is critical to have confirmed leadership for these two important positions, which is why it is disappointing that the GOP Banking Committee members ignored the excellent qualifications, experience and background of the two Presidents Biden nominated for these positions, and decided instead.” for exposing them to unfounded, personal attacks,” the person added.

The official said the White House would not “sit around long” to recruit someone else for the Fed job, but stressed the need to get Biden’s remaining four nominees, including Powell, through the Senate to the central bank first.

Sen. Elizabeth Waren (D-Mass.) said in a statement to POLITICO that not having anyone in that role means “the Fed is ill-equipped to ensure our financial stability in times of heightened threats.”

“We need regulators to crack down on the climate crisis and the growing risks posed to our economy by cryptocurrency, and stand up to industry lobbyists to secure our economy,” she said.

In a way, the vacancies mark a victory for Republicans, who vehemently opposed Raskin’s nomination because it advocated closer scrutiny of fossil fuel financing. They also labeled Omarova a radical for writing positively about the Fed being the bank account provider for Americans. Without a new Fed regulatory czar, the status quo of the last, Trump-appointed Randal Quarles, will largely apply.

Sen. Pat Toomey (R-Pa.), the top Republican on the Banking Committee, told reporters last week he wasn’t worried about the job remaining vacant for now. “Banks and large financial institutions are extremely resilient and very, very heavily capitalized,” he said. “So I don’t think this is a dangerous time for financial institutions at all.”

GOP lawmakers have also warned that the Fed is deviating from its statutory mandate on issues like climate change and racial justice.

“I think it would be much more problematic for the institution and the economy to appoint someone who doesn’t have a shared view of how the Fed should be used if that went wrong,” said Christina Skinner, Wharton’s financial regulation expert School at the University of Pennsylvania. “The best we can hope for is a vice chairman who explicitly commits to non-politics.”

Former Minneapolis Fed President Narayana Kocherlakota in a Bloomberg Opinion article this week wrote that the White House should depoliticize the role by appointing a longtime central banker.

Since October, all of the Fed’s regulatory moves have been led by the entire board. The central bank still has a full staff dedicated to overseeing the banks; They took the unusual step in December of publicly scolding big banks after the collapse of over-indebted investment fund Archegos Capital Management.

But the central bank’s oversight committee is currently inactive as no specific board member is leading the longer-term agenda.

However, an indefinite vacancy could still cause concern for Republicans. The Fed is an institution where its staff already wields a great deal of power, both because of their often long tenure and because of their expertise. Many GOP lawmakers have taken it upon themselves to push for more accountability at the central bank.

“That’s one of the main reasons for worrying about not having a vice chair,” Skinner said. “Decisions are only made in a more opaque process.”

Dennis Kelleher, head of advocacy group Better Markets, expressed frustration at the lack of focus on banking supervision in the debate over Raskin’s candidacy and accused oil and gas companies of “hijacking” their nomination process. He cited lurking financial risks as the Fed embarks on a rate hike campaign, something he said a vice chairman of the regulator should oversee.

“No matter how much banks prepare for a different interest rate environment, they simply cannot anticipate everything that might happen, not just for themselves but for all of their customers and counterparties,” he said. “The Fed needs to be very involved on the supervisory side in stress testing all of the assumptions banks make about their own balance sheets.”

There are incumbent officials who run both the FDIC and the Office of the Comptroller of the Currency — Martin Gruenberg and Michael Hsu, respectively — and the Biden administration is not expected to replace them any time soon. Gruenberg, who took the helm of the FDIC in early February after its Republican chairman resigned under pressure, has outlined priorities consistent with what Biden’s appointees would likely do, including a focus on climate change, bank mergers and cryptocurrencies.

Hsu, who has held the position on an executive basis since last May, has already presented draft guidance to large banks suggesting that climate change could pose a significant threat to their health.

But the three federal bank regulators generally act in unison on policy, and the Fed is unlikely to change course without the direction of a policy appointee, even in cases where the industry wants more clarity. That could also complicate the efforts of the other agencies.

“Formal Senate endorsement is not necessarily a requirement or a guarantee that people will do the things that need to be done and do them well,” said Omarova, a professor at Cornell Law School. However, she stressed the benefit of government officials “being vetted and publicly questioned and evaluated on their political views.”

“It gives the regulator a greater sense of legitimacy and democratic consent,” she said, adding that they face “new legal and policy issues that are likely to shape how financial markets evolve in the years or even decades to come.”

The Democrats want to take action against Wall Street. Guess who’s in the way.

Source link The Democrats want to take action against Wall Street. Guess who’s in the way.

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