Lael Brainard, Governor of the US Federal Reserve, speaks at the National Association of Business Economics(NABE) annual meeting in Arlington, Virginia on Monday, September 27, 2021.Al Drago | Bloomberg | Images
Governor of the Federal Reserve Lael "The influence increased Brainard in the future likely means substantial changes and challenges for the country's banking system.
Seen as a progressive who favors tighter reins on financial institutions, by Particularly the Wall Street powers, Brainard is expected to feature prominently as President Joe Biden assesses who will chair the central bank and who will specifically oversee the banks.
She is expected to be get one of those two positions in the next few months.
"Anyone can see the Fed moving to a more progressive stance, and it wouldn't be a big shock to see that. 'She gets more power as president or vice president of the Fed. presidentregulatory spur, ”said Yardeni Research President Ed Yardeni. "As the Fed has always focused more on monetary policy than regulation, now one of its new progressive mandates is to pay more attention to regulating banks. " "
This question Last week, Senator Elizabeth "Warren , D-Mass., Progressive leader and former presidential candidate, calls current President Jerome Powell "dangerous because of the Fed's decision to relax banking regulations.
Warren then announced that she would oppose Powell's re-appointment. Powell's term ends in February, although Biden is expected to make a decision long before that.
Various reports have placed Brainard as the pfirst choice for Warren, although the senator has not made a public commitment to a candidate. Efforts to reach Brainard for comment were unsuccessful.
"The issue right now is the renaming of President "of Fed Powell . I made my position clear on this, "Warren said in an interview with CNBC earlier this week. " I will not be talking about the other nominees. "
For what They're worth it, betting markets don't expect a change at the top of the Fed. PredictIt gives Powell about a 73% chance of being confirmed by the Senate, while Brainard doesn't only 18%.
Powell also has enough support in the Senate to go through the Banking Committee and speak for a confirmation vote, according to a " report from Bloomberg News .
Even without securing the presidency, Brainard can have a major influence on the banks. If she is not appointed president, odds are she will be named vice president for oversight, a position that the current incumbent, Randal Quarles, is not expected to keep when his term expires. tenure this month.
"The presumption is that if Powell is re-appointed, not only will Brainard be the vice president of oversight, but she will also have a reasonable amount of carte blanche, "said Tom Graff, director of Brown Advisory for fixed income. "Obviously, Brainard would be a stronger and tighter regulator than Quarles.
Three issues to watch out for
There are probably three areas where its influence would be felt the most: climate change, the implementation of a central bank digital currency and the incentive of banks to raise capital in timesof prosperity. This latter problem is referred to in the banking industry as countercyclical capital buffers, wh "ich Brainard supports and Quarles " s 'is opposed .
While the third issue takes banks back to the pre-high risk era of finance, the first two are uncharted waters. The Fed is expected to publish a study soon on the the "viability of ' a digital dollar backed by the Fed of which Brainard has been a strong advocate, although other officials have been more skeptical.
Climate change is one area Brainard is working on particularly interested.
On Thursday, she gave a "speech discussing " the "climate scenario analysis essentially an approach aimed at getting institutions to start planning for the financial risks they might face. climate issues. However, she also discussed the possibility of testing banks for climate risk.
In the speech, she noted that such planning should involve "consistent, comparable and, ultimately, disclosures account, mandatory ”on the climate. , indicating that at some point banks will be forced to account for the threat.
"Together, these efforts can help ensure that the financial system is resilient to climate-related risks and well. positioned for the transition to a sustainable economy "she said.
What this would mean for banks
Investors are already wary of bank stocks this year, as weak demand for loans and low interest ratesExtremely low interest has hampered operating margins.
Having Brainard as a direct regulator at the Fed could shake up the industry even more, although experts who observe the industry fail to do so. don't usually expect her to be seen as a major threat. The talks, however, come as Biden appointed Saule Omarova, who is considered tough on the banks, as head of the Office of the Comptroller of the Currency.
"Brainard has experience in [ Vice President for Supervision]. She is current I have already done so. It 's safe, "said Christopher Whalen, president of Whalen Global Advisors. "Her progressive leanings on the monetary side, if she were president, I would worry. " Includes a three-year period as Under Secretary for International Affairs in the Treasury during the Obama administration. She has held several positions at the Fed, including chair of its stability sub-committees at the end ofand payments, clearing and settlements.
On monetary policy, she has been one of the main dovish voices, meaning she has supported interest rates low. She was seen as an ideological soul mate of the former president Janet "Yellen - now Treasury Secretary - so much so that Fed watchers viewed Brainard's speeches as reliable indicators of Yellen's stance on monetary policy.
The L The Fed leadership's intrigue comes a period of ethical turmoil that has seen two regional presidents, Eric Rosengren of Bosto and Robert Kaplan of Dallas, resign after being told they were carrying out " large transactions in their individual investment portfolios . A third responsible,Federal Open Market Committee Vice Chairman Richard Clarida has also been quoted in press articles showing that he executed trades the day before a Powell speech in February 2020.
Like other Fed officials , Brainard has remained silent on the issue as the handicap continues over the direction the central bank is taking.
"Powell was the path of least resistance for the White House," Graff said from Brown Advisory. "If this story continues to matter and gives air to Warren's argument that he is not keeping a close eye on his own people or the banks, it might just change the politics of [Biden's] decision. "
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