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Can Biden get a Fed climate candidate past Joe Manchin?

Sen. Joe Manchin has turned into a real headache for President Biden on climate.

The latest example came this week when the West Virginia Democrat torpedoed the nomination of Sarah Bloom Raskin for the Federal Reserve. Biden wanted Raskin, a climate-savvy financial regulator, to serve as the Fed’s top bank cop, but Manchin disagreed — effectively killing her chances in the narrowly divided Senate and forcing Raskin to withdraw her nomination.

Now the White House has to go back to the drawing board to fill the role, which has been vacant for months and is responsible for reining in big banks and monitoring emerging threats to the U.S. financial system.

Tapping someone new for the Federal Reserve post won’t be easy.

Observers say Biden’s major challenge will be finding a candidate who is attuned to the risks of climate change but still can survive a confirmation battle in the Senate. The Senate already has blocked two Biden nominees in part because of their views on the financial threats of global warming.

“There’s no margin for error,” said Sarah Binder, a professor at George Washington University who focuses on the Fed’s relationship with Congress.

Indeed, in explaining his opposition to Raskin, Manchin signaled that he wanted someone who embraces an “all-of-the-above energy policy.” Also critical to him: controlling inflation, ensuring stable prices and encouraging maximum employment.

“I will not support any future nominee that does not respect those critical priorities,” Manchin said in a statement.

The setback on Raskin is a major development because it leaves the Federal Reserve without a qualified nominee in the pipeline who would be responsible for overseeing the regulation and supervision of the nation’s biggest banks. The last person to hold the role was Randal Quarles, a Republican appointed by former President Trump whose term ended in October.

Experts say Biden must fill the vacancy soon. That’s the case because in the near term, the Fed has a responsibility to work alongside the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., two other financial agencies, on regulatory efforts including bank mergers and stress testing.

“That work isn’t really going to happen until we get a new vice chair for supervision,” said Jeremy Kress, a former Federal Reserve attorney who is an assistant professor at the University of Michigan.

Long term, the stakes are even higher.

“We know what happens when regulation stands still. The financial industry innovates … [and] policymakers don’t address emerging risks like crypto and climate. And that’s how financial risks develop and crises happen,” Kress said. “So I worry a lot about regulatory and supervisory inaction in the absence of a confirmed vice chair for supervision.”

To be sure, the formal job has been empty before, including during much of the Obama administration. But the key difference between then and now is that while former Fed Governor Dan Tarullo acted as an Obama-era stand-in, it’s not immediately clear who among the current Fed governors or nominees would serve that role today.

For that reason among others, Kress said it’s “imperative” Biden moves forward with a new nominee as quickly as possible.

Doing so is expected to be tenuous. While progressives have called on Biden to nominate officials who have strong climate credentials, there’s a newfound understanding that to move nominees through the confirmation process, he’ll have to tread more carefully.

“The Biden White House has to thread the needle here and find someone who can get support without turning off Joe Manchin,” Binder said.

In addition to sinking Raskin, Manchin also helped stop Biden’s “Build Back Better Act,” which contained billions of dollars for clean energy and climate change programs.

In Binder’s eyes, Biden’s next Fed nominee doesn’t need to reject the notion of climate-related risk. Rather, she said, they likely would need to be rhetorically in line with Fed Chair Jerome Powell on key issues including climate change — but also able to win the support of progressives such as Sen. Elizabeth Warren (D-Mass.).

Kress echoed that point. He said Raskin’s fiercest opponents anchored their opposition to a small number of previous statements. Principal among them was a 2020 op-ed Raskin penned in The New York Times that criticized the Fed for changing the terms of an emergency pandemic lending facility. Raskin said the change was made in a way that would prop up fossil energy companies that were struggling long before the pandemic.

“There could be a happy medium for somebody who perceives, understands and is ready to tackle the risks that climate poses to the financial system,” Kress said, “but does not have those statements on their record about using the Fed’s monetary tools to proactively green the economy.”

Some green groups seem to agree.

Though advocates backed Raskin for the Fed spot, the focus now is simply getting a candidate into the role who would take the job seriously, said Kathleen Brophy, a senior strategist with the Sunrise Project. As she sees it, any competent bank regulator would be finely attuned to the ways extreme weather events and the clean energy transition threaten the U.S. economy.

“We don’t need a climate champ,” said Brophy. “We never have. What we need is someone who takes an apolitical view toward financial risk, and bank safety and soundness.”

Strategy aside, multiple observers said it’s clear there’s a long road ahead. The administration must narrow and vet a new list of candidates before working to secure enough votes to move the eventual nominee through the Senate Banking, Housing and Urban Affairs Committee — and later the full Senate.

“That’s a time-consuming endeavor,” said Claudia Sahm, a former Fed economist who is currently a senior fellow at the Jain Family Institute.

As she sees it, the administration’s road ahead will be tenuous because she thinks GOP opposition is rooted in a fear of prudent financial regulation — not climate risk efforts specifically. The opposition includes Sen. Pat Toomey of Pennsylvania, the top Republican on the Senate Banking Committee.

“Senator Toomey knows well that the Fed can be extremely effective. It has authority to do a lot of work in terms of regulating financial stability. And if there are capable, competent people at the helm, they will get the job done. And that is what he is afraid of,” Sahm said.

Toomey says his main priority is ensuring Fed officials stay in their lane. He said in an emailed statement that Biden should nominate an “individual who will focus exclusively on implementing the Fed’s statutory mandates of stable prices, full employment, and supervision of bank holding companies.”

A spokesperson for Sen. Sherrod Brown (D-Ohio), who chairs the Banking Committee, said in an email that the senator believes the vice chair of supervision is an “important role and that the American people were deprived of an excellent candidate.”

White House press secretary Jen Psaki said yesterday that the administration was unhappy with the outcome of Raskin’s bid but would tap someone new to serve as the Federal Reserve’s top bank cop.

“We are certainly disappointed; Sarah Bloom Raskin remains one of the most highly qualified people to ever be nominated to this position,” Psaki said. “But it’s an important role, and he will nominate someone to fill the position.”