According to Michael Barr, “the only objective should be to understand the risks that the climate could pose to the financial system and to work” on “measures to manage these risks.”
The US central bank (Fed) must understand climate risks and help banks deal with them, not determine which sectors they should or should not lend to, according to Michael Barr, chosen by Joe Biden to become vice president for banking regulation .
Michael Barr has thus adopted a much more consensual approach than Sarah Bloom Raskin, initially chosen, but who had given up for lack of sufficient support in the Senate, on the subject of the role of the central bank with regard to financing in the energy sector in particular. The Republican opposition had expressed concern for the sacrosanct independence of the Fed.
The Fed “should not be tasked with telling financial institutions to lend to a particular sector, not to lend to a particular sector“, said Michael Barr during a hearing Thursday before the Senate Banking Committee, for the confirmation of his appointment.
Architect of a law to better regulate the activity of banking institutions
For him, “the sole objective (…) should be to understand the risks that the climate could pose to the financial system and to work with financial institutions on measures to manage these risks”. This former Treasury official under the Clinton and Obama administrations, on the other hand, is in favor of regulating the banks, but “multi-level”. “The strictest rules should apply to the largest institutions, with a gradual and graduated approach”he detailed, calling for “be careful with community banks, which are struggling to cope with the regulatory burden.”
Michael Barr was one of the architects of the Dodd-Frank law, passed after the financial disaster of 2008 and aimed at better regulating the activity of American banking institutions. If his appointment is confirmed, after two votes in the Senate – in committee and then in plenary -, his role will be to supervise the activity of financial institutions, from banking giants such as JPMorgan Chase, Bank of America and Citigroup, to the local banks, the “community banks”.