Biden’s Fed nominees would make history. Will they all make the cut?

WASHINGTON — The Biden administration’s picks to fill out the remainder of the Federal Reserve Board are a high-water mark for racial and gender diversity on the central bank’s governing body, but it remains to be seen how the nominees will be received by the Senate.

After months of anticipation, the White House announced on Thursday evening it would nominate Sarah Bloom Raskin, a former senior official at the Treasury Department and a prior Fed governor, to become the next vice chair of supervision — one of the country’s most influential bank regulatory posts.

Biden will also nominate Lisa Cook, an economics professor at Michigan State University, and Philip Jefferson, a dean, vice president and economics professor at Davidson College, to serve as Fed governors. Cook and Jefferson are Black.

“Raskin is among the most qualified nominees ever for the position of vice chair for supervision, while Jefferson and Cook are talented economists with decades of experience working on a broad range of economic issues,” President Joseph Biden said in a statement released by the White House Friday morning, adding that the nominees would bring “a diversity of thought and perspective never seen before on the board of governors.”

Of the new Fed nominees, Sarah Bloom Raskin (left) could face the most opposition in the Senate because of her statements about the financial risks posed by climate change. The academics Philip Jefferson, who has studied the economic impact of poverty, and Lisa Cook, who has written about racial and gender inequality’s effects on innovation, are expected to stir less controversy.

Bloomberg News, John Crawford/Davidson College

Raskin’s background and experience constitute the definition of a Washington insider — confirmed by the Senate twice under the Obama administration, Raskin is also married to Rep. Jamie Raskin, D-Md., and remains one of the capital’s most familiar figures in financial policy.

Cook and Jefferson are less well known in Washington, though Cook served as a presidential-transition advisor in the months leading up to the Biden administration’s arrival. If confirmed, Cook would be the first Black woman to sit on the Fed’s board. The last black governor at the Fed was Roger Ferguson, who left the agency in 2006.

Cook and Raskin’s addition to the board would also mark the first time four women served on the Federal Reserve Board at the same time. Gov. Lael Brainard, who has been nominated for vice chair of the board, and Michelle Bowman are the others.

Lawrence Kaplan, a banking lawyer at Paul Hastings LLP, said the three nominees represent a “home run” because of the expertise they bring to the central bank — particularly in international economics.

“We need a really good cadre of people analyzing our economy, and they bring perspectives that are unique, and that really understand what our economy has turned into,” Kaplan said. “Their backgrounds really round out the board. From that perspective, it’s a home run of really good people whom you would want.”

While Cook and Jefferson’s approaches to economics are well documented through their scholarship, less is known about how they may approach financial regulation. “My sense is that they have not really expressed views on bank regulation,” said Todd Phillips, director of financial regulation at the Center for American Progress.

Gene Ludwig, a former comptroller of the currency during the Clinton administration, noted that banks should appreciate Raskin’s experience in the private sector. Raskin worked with Ludwig at Promontory Financial Group and also worked at Arnold & Porter before serving as counsel to the Senate Banking Committee.

“It’s relatively rare that regulators have any private-sector experience. That’s OK — they’re honest, decent people who do a decent job,” Ludwig said. But “banks benefit from people who are professional regulators and who also have had private-sector experience, so that they’re talking to people who actually understand the business without having a political point of view.”

Democratic policymakers broadly praised the Biden administration’s nomination of Cook and Jefferson on Friday morning. In her scholarship, Cook has written at length about the impact that racial and gender inequality can have on innovation and economic growth. Jefferson is known among academics for his study of poverty and its economic impact on education and labor outcomes.

“The expertise that Lisa Cook and Philip Jefferson bring to the subject of racial economic disparities in the labor market are crucial perspectives to have at the table as the Fed navigates an economy where recovery is being experienced unevenly and where concentration and supply-chain disruption have led to higher prices,” House Financial Services Committee Chair Maxine Waters, D-Calif., said in a press release.

Still, analysts say given Raskin’s longtime visibility in D.C. and the relatively low profiles of Cook and Jefferson, political support and opposition will likely focus tightly around Raskin’s nomination to be vice chair for supervision.

“At first blush, we believe the Cook and Jefferson nominations are likely to secure confirmation as they are eminently qualified, and our sense is that the Republican opposition will focus on the [vice chair for supervision] nomination,” Isaac Boltansky, a managing director at BTIG, said in a research note.

Raskin’s political, and familial, proximity to Democratic leadership could be a boon to her candidacy. Jaret Seiberg, a policy analyst with the Cowen Washington Research Group, said in a research note Friday morning that it would be “unusual for the Senate to reject a nominee who is the spouse of a sitting member of Congress.”

But Kaplan said he was concerned that Republicans would try to kill Raskin’s nomination as political payback for the prominent role her husband served during the second impeachment trial of Donald Trump. “It would be a shame because [Raskin] is really good, she really understands the issues and she’s qualified,” Kaplan said.

“There is no question whatsoever that Bloom Raskin is qualified for the VCS role given her extensive background with the issues,” Boltanksy said. “Our sense, nevertheless, is that she will face intense opposition from Senate Republicans given her views on the nexus of financial regulation and climate change.”

Raskin has advocated for bank regulation and supervision to account for the financial risks posed by climate change in recent years. In a September article, she argued that “while none of [U.S. financial regulators were] specifically designed to mitigate the risks of climate-related events, each has a mandate broad enough to encompass these risks within the scope of the instruments already given to it by Congress.”

“Accordingly, all U.S. regulators can — and should — be looking at their existing powers and considering how they might be brought to bear on efforts to mitigate climate risk,” Raskin said.

That will be a sticking point for Republicans, which some made clear even before her nomination was officially released by the White House.

During Thursday’s Senate confirmation hearing for Brainard, Sen. Pat Toomey, R-Pa., invoked an opinion piece written by Raskin for The New York Times in May 2020 that criticized the Fed’s decision to allow financially struggling companies in the fossil-fuel industry to access its Main Street Lending Program — an argument that Toomey claimed was akin to advocacy “that the Fed allocate capital by denying it to this disfavored sector.”

In a statement released by Toomey’s office, the ranking Republican on the Banking Committee said he still had “serious concerns that [Raskin] would abuse the Fed’s narrow statutory mandates on monetary policy and banking supervision to have the central bank actively engaged in capital allocation.”

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