The banking industry may soon have a new cop on the beat: Sarah Bloom Raskin.
Last week, the Biden administration announced that it was picking Raskin for the vacant vice chair of supervision job at the Federal Reserve.
If confirmed by the Senate, Raskin would take on one of the most powerful bank regulatory jobs in Washington. Her previous commentary suggests she could take a more aggressive approach to the banking industry than her Trump-appointed predecessor, Randal Quarles.
Analysts at Goldman Sachs research noted on Jan. 14 that her appointment “would likely signal a hawkish shift on regulatory policy,” not just on bank capital requirements but climate risks as well.
Raskin’s appointment would mark a homecoming for the former Fed governor, who served at the central bank from 2010 to 2016. Her experience in financial regulation comes from work at the U.S. Treasury under the Obama administration, where she served as deputy secretary. During the financial crisis, she served as Maryland’s commissioner of financial regulation, overseeing the state’s banks during the recession.
Sen. Sherrod Brown, a Democrat from Ohio who heads the Senate Banking Committee, consulted the White House on the pick. He expects her to revisit some regulatory rollbacks made by Quarles, who took a “tailored” approach that loosened liquidity and funding requirements at some large super-regional banks (like U.S. Bancorp and PNC Financial Services).
“Raskin comes in with a philosophy of holding Wall Street and holding the big banks accountable,” Brown told reporters Tuesday. “When she sees places where her predecessor fell short, I assume and expect and hope that she will stand up and make changes where they’re necessary.”
Betsy Duke, a former Fed governor who worked alongside Raskin to implement some post-financial crisis reforms, said her former colleague understands the balance between regulations that strengthen the safety of the banking system without imposing undue burden on smaller firms.
“She’s a solid regulator and I think a really good choice,” Duke told Yahoo Finance, adding that the job is a “tough role.”
Climate change a priority
The Federal Reserve is the economic steward of the U.S. economy, steering interest rates to counteract an underachieving over an overheating system. But it also serves as a primary regulator for some of the nation’s largest banks, making its top regulatory official one of the most powerful figures in the banking industry.
Raskin’s commentary from as recently as September suggest that climate change will be a main priority if she’s confirmed to serve as vice chair of supervision.
“[Regulators] need to ask themselves how their existing instruments can be used to incentivize a rapid, orderly, and just transition away from high-emission and biodiversity-destroying investments,” she wrote in Project Syndicate.
Her comments addressed the broad U.S. regulatory structure — as opposed to the Fed’s specific authority — but nonetheless attracted criticism from the Senate Banking Committee’s top Republican, Pat Toomey. Shortly after news of her appointment, Toomey expressed concern that Raskin would “abuse the Fed’s narrow statutory mandates” by discouraging a shift away from oil and gas companies.
The Fed has already signaled an intention to assess the broad risks to the financial system posed by extreme weather events and a transition to cleaner energy. Powell has insisted that the Fed does not intend to discourage lending to the fossil fuel industry.
“We are not, and we do not seek to be, climate policymakers,” Powell said last year.
Isaac Boltansky, a policy analyst at BTIG, noted on Jan. 14 that bank stress tests could be another focus with Raskin in the top regulator role. The tests, put in place after the financial crisis, assess a bank’s capital levels to ensure that the most systemic firms can absorb a theoretical shock without endangering the financial system.
A bank’s performance in the exam determines its “stress capital buffer,” which not only sets custom regulatory minimums, but weighs on a bank’s capacity to dole out share buybacks and dividends.
“In this vein, most of our bank investor conversations have focused on potential stress test changes, which we believe could include a doubling of the four-quarter dividend pre-funding requirement under the Stress Capital Buffer,” Boltansky noted.
Raskin will soon face a confirmation hearing in the Senate Banking Committee, which Brown said he hopes to hold some time in early February.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.