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SBC Fed Nomination Hearing

Senate Committee on Banking, Housing, and Urban Affairs

Nomination Hearing

Thursday, February 3, 2022

Topline

  • Much of the hearing focused on the Fed’s independence – considering Raskin’s past statements about the oil and gas industry – and inflation.
  • Other notable lines of questioning included Fed master account access, cybersecurity, executive compensation, climate risk, and bank asset caps.

Witnesses

  • The Honorable Sarah Bloom Raskin, of Maryland, to be Vice Chairman for Supervision and a Member of the Board of Governors of the Federal Reserve System
  • Lisa DeNell Cook, of Michigan, to be a Member of the Board of Governors of the Federal Reserve System
  • Philip Nathan Jefferson, of North Carolina, to be a Member of the Board of Governors of the Federal Reserve System

Opening Statements
Chairman Sherrod Brown (D-Ohio)

In his opening statement, Brown described pandemic-related problems in the economy and the need for a full Federal Reserve Board. He then touted the credentials of the nominees and pushed back against characterizations depicting Raskin as a radical.

Ranking Member Pat Toomey (R-Pa.)

In his opening statement, Toomey pushed back against using the Fed to address what he characterized as “political issues” that should be decided by elected officials and not bank representatives. He criticized Raskin’s proposals for the energy sector, including reallocating capital away from the fossil fuel industry.

Testimony
The Honorable Sarah Bloom Raskin, of Maryland, to be Vice Chairman for Supervision and a Member of the Board of Governors of the Federal Reserve System

In her testimony, Raskin explained her appreciation for community banking and stated that bank supervisors must make sure that the safety of banks and the resilience of our financial system are never compromised in favor of short-term political agendas or special interest groups. She also said that the role of Vice Chair of Supervision does not involve directing banks to make loans only to specific sectors or to avoid making loans to particular sectors. Raskin then recognized the toll inflation exacts on working people and the responsibility of the Federal Reserve to reduce inflation.

Dr. Lisa DeNell Cook, of Michigan, to be a Member of the Board of Governors of the Federal Reserve System

In her testimony, Cook stated that the Fed’s most important task is tackling inflation and highlighted the independence of the Fed. She then explained her credentials and career history and concluded by stating that she will faithfully support the congressionally mandated goals of stable prices and maximum employment.

Dr. Philip Nathan Jefferson, of North Carolina, to be a Member of the Board of Governors of the Federal Reserve System.

In his testimony, Jefferson began by stating his commitment to maximum employment and price stability. He then discussed two challenges facing the economy, the pandemic and inflation, explaining that the pandemic has disrupted the supply side of the economy and changed the composition of aggregate demand and that the spike in inflation we are seeing today threatens to heighten expectations of future inflation. He added that the Fed must remain attentive to this risk and ensure that inflation declines to levels consistent with its goals.

Question & Answer

Financial Risk

Brown asked Raskin how she would approach evaluating risks to our financial system. Raskin said the job of regulators is to make sure the financial system is prepared to mitigate risks and demonstrate resiliency. She then outlined three principles that should define the Fed’s approach risk: (1) the Fed should not choose borrowers for banks, (2) regulation should be collaborative, and (3) supervisory and regulatory actions must stay within the bounds of the law.

Fed Independence and Agenda

Toomey quoted Raskin’s comments on climate risk and questioned whether she is an advocate for regulators determining credit allocation. Raskin responded that the Fed should not push for reallocating capital based on climate risk or pick winners and losers. Sen. John Kennedy (D-La.) engaged in a colloquy with Raskin, asking her if she meant what she said about allowing oil and gas companies to go broke. Raskin said the quoted op-ed was written in the context of the Fed’s pandemic-related lending facilities, adding that the article was not about Fed supervision and regulation. She also pushed back against Kennedy’s characterization of her comments as advocating for the politicization of the Fed. Sen. Kevin Cramer (R-N.D.), addressing the colloquy between Kennedy and Raskin, said Raskin’s advice and opinions in the referenced op-ed were not confined to the Fed’s lending facilities and asked if banks ought to consider whether the markets that they support have a less than resilient supply of energy. Raskin underscored that the Fed is not looking to expand its powers and that bankers make decisions about who they lend to, not regulators. Sen. Jon Tester (D-Mont.) asked if the Fed should discourage banks from lending to carbon based fuel like oil, coal, or gas. Each nominee said no. Sen. Jerry Moran (R-Kans.) asked for additional reassurance that the Fed will not be politicized through issues like oil and gas and climate risk. Raskin touted her record as a bank commissioner, a Fed governor, and as Deputy Secretary of the Treasury and stated that it is not the role of the Fed to favor one sector of the economy over another, an action she views as outside the bounds of the law.

Sen. Bill Hagerty (R-Tenn.) explained the recent conflict between FDIC Board members and former-Chair Jelena McWilliams and asked if Raskin will commit to deferring to the Chair Powell to set the Board’s agenda. Raskin said yes. Sen. Catherine Cortez Masto (D-Nev.) asked if any single member of the Fed Board could weaponize the mission of the Board. Each nominee said no.

Tapering

Toomey asked Cook if she supports the Fed’s current path of accelerating tapering. Cook said she would need to see the relevant data but supports the Fed’s path as it is right now.

Inflation

Toomey asked Cook how to get inflation under control. Cook emphasized the importance of analyzing data as it becomes available to address inflation. Sen. Robert Menendez (D-N.J.) asked Jefferson if current inflation is driven by supply chain bottlenecks and what the Fed can do to address it. Jefferson said that current inflation has multiple components, including supply chain issues, and that the Fed’s monetary policy tools cannot address the supply side, emphasizing instead the Fed’s dual mandate. Sen. Raphael Warnock (D-Ga.) asked what considerations Jefferson would give to corporations choosing profits over the economy. Jefferson said the impact of inflation on families is real and that the Fed can conduct monetary policy to encourage prices consistent with the Fed’s target. He also said that other regulators are better able to address concentration in industry.

Cybersecurity

Responding to a question by Sen. Jack Reed (D-R.I.), Raskin said her conversations show that bankers are more worried about cybersecurity than climate risk and discussed approaches she had taken in her career to deal with cybersecurity risk, including making sure that regulators were speaking with a consistent voice. Sen. Mark Warner (D-Va.) asked Raskin about cybersecurity threats, to which she responded that cyber threats are evolving at a quick pace and that the financial sector needs to feel protected from these threats. Warner also asked if a cyber-attack on the financial system is a systemic risk. Raskin said yes.

Small Dollar Lending

Sen. Tim Scott (R-S.C.) criticized the 36% usury cap and asked Raskin for comments. Raskin said small dollar loans are an important source of credit and that more can be done to provide access to safe, affordable small-dollar loans.

Diversity

Menendez asked if the nominees would commit to increasing Latino representation, including in leadership positions, at the Fed. Each of the nominees said yes.

Executive Compensation

Menendez asked if the nominees would commit to working with other regulators to develop an incentive based executive compensation rule. Raskin said yes. He then asked if she would finalize a rule by the end of 2022 if confirmed. Raskin said she would look into the reason for the delay and look at the issue.

Community Development Financial Institutions (CDFI)

Warner asked what the Fed can do to strengthen the CDFI sector. Cook said the Fed is beginning to engage in discussions around CRA reform, which include shoring up funding for CDFIs.

Cook’s Academic Record

Hagerty criticized Cook for allegedly misrepresenting her professional background and asked about her monetary policy credentials. Cook countered that she has been the target of untrue attacks on her academic record and explained her experience in academia and with economic crises.

Fed Master Account Access

Sen. Cynthia Lummis (D-Wyo.) asked about Fed master account access and Reserve Trust’s application that Lummis said Raskin helped get approved by the Fed Board. Lummis continued that she has significant questions about Raskin’s influence over that process and if Raskin communicated with the Fed Board about Reserve Trust’s application. Raskin stated that the Fed has approved plenty of master accounts, but Lummis countered that those accounts have not been in fintech.

Climate Risk

Sen. Elizabeth Warren (D-Mass.) asked if Powell’s statement about the Fed ensuring that banks are managing and addressing climate risk threats describe their views. Each nominee said yes. Warren also asked if the nominees believe that climate risk stress scenarios are important. Each responded yes.

Bank Asset Caps

Sen. Thom Tillis (R-N.C.) asked what conditions are needed to raise the asset cap of a specific bank, when a cap would be used again, and if a bank needs to be perfect to have its cap lifted. Jefferson said he does not have expertise in that area but that if he were confirmed, he would look forward to learning more about those issues. Cook said she would assess the risk to the system and ensure resiliency. Raskin said that if there are ways to improve a regulation by making it clearer, that would be beneficial, and she would be happy to look at a regulation that requires more clarity.

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.