Wall Street is getting a major reprieve from tougher oversight after President Joe Biden’s pick to be the top U.S. banking regulator ran aground.
Progressives had pinned their hopes on Sarah Bloom Raskin — a Duke University law professor and Washington insider who previously held high-level jobs at the Treasury Department and the Federal Reserve — to help bring about an era of much tougher oversight for the nation’s largest lenders. Those plans, and expectations for the Fed to play a bigger role in combating climate change, are now in disarray after Raskin failed to win enough support in the Senate.
She faced stiff opposition from Republicans to be the Fed’s vice chair for supervision since she was nominated in January despite easily winning confirmation to serve as Fed governor and then deputy Treasury secretary earlier in her career. Senator Pat Toomey of Pennsylvania, the top Republican on the Senate Banking Committee, led the effort to refuse a vote on her candidacy, citing her previous comments on fighting global warming and questions around her work for a Colorado fintech company.
Her exit means Biden’s four other Fed nominees — including the reappointment of Chair Jerome Powell — are likely to move through the committee to a vote by the full Senate.
While Raskin described the opposition as “diversionary attacks on my ethics and character” as she withdrew her name from consideration on Tuesday, the fallout from her exit is unmistakable: a clear victory for GOP lawmakers and bankers who were leery of her policy views.
It was unclear if the president intends to nominate someone else in coming days. White House officials declined to comment on Tuesday evening.
Without a clear alternative candidate, the position could remain open heading into U.S. midterm elections in November, when Republicans may recapture the Senate — a result that would make it all but impossible to confirm a progressive candidate for the job.
‘Lost opportunity’
“It’s becoming clear that the supervision post will be vacant for a while,” Ian Katz, an analyst at Capital Alpha Partners, said in a note to clients. “In the context of financial regulation, it’s hard to overstate how much of a lost opportunity this was for the Democrats.”
Because the Fed is charged with monitoring Goldman Sachs Group Inc., JPMorgan Chase & Co. and other massive financial firms, the post of vice chair for supervision is seen as the most powerful bank regulator in Washington.
In addition to setting rules in arcane areas that go right to lenders’ bottom lines like balance-sheet liquidity and capital levels, the person in that position oversees closely-watched annual stress tests that review bank safety. Yet it’s been filled for just four of the years since the role was established under the Dodd-Frank law of 2010, enacted following the global financial crisis.
Raskin was expected to lead the Biden administration’s push to bring much tougher day-to-day oversight of banks, which had enjoyed a relatively light-touch approach to supervision and enforcement during the Trump administration. Critics said the last person to hold the job, Randal Quarles — a former bank investor and executive at private-equity giant Carlyle Group Inc. — was too sympathetic to the industry.
Merger reviews
At the same time, financial firms had also been bracing for the Fed under Raskin to become more reticent to sign off on mergers between regional lenders. The issue has become a rallying call for liberal Democrats who argue that the process for winning approval has effectively become a rubber stamp.
In Raskin’s confirmation hearing in February, she sought to counter Republican criticism that she’d use her perch to impose policies targeting the oil and gas industries by saying the supervision role wasn’t about picking favorite industries.
Raskin said in her withdrawal letter to Biden on Tuesday that she believes the “perils of climate change must be added to the list of serious risks that the Federal Reserve considers as it works to ensure the stability and resiliency of our economy and financial system.”
“This is not a novel or radical position,” she wrote.
Her exit has implications for other policies as well, including in-the-weeds issues that are hugely consequential for lenders with major trading operations.
For example, Fed officials have previously signaled that new capital standards for the big banks that the Fed calls “Basel III endgame” would be balanced by cuts in other capital demands placed on lenders to ensure the industry’s overall compliance burdens go basically unchanged. Some in the industry were concerned that a supervision boss who’s less cozy with banks might arrive with different ideas.
