While CEOs agreed unanimously on the need for federal LIBOR legislation, House and Senate lawmakers demonstrated they remain sharply divided on what role financial institutions and their regulators should play in confronting environmental and social challenges.
Semiannual Testimony of the Federal Reserve’s Supervision and Regulation of the Financial System
On May 25, Federal Reserve Vice Chairman for Supervision Randal Quarles testified before the Senate Banking Committee (SBC) that the Fed is engaged in an early-stage analytical examination of climate risks, and is seeking to develop a framework, for addressing the potential risk to the financial sector and overall stability. While Mr. Quarles acknowledged geographical or demographical research must remain focused on analysis rather than advocacy, Ranking Member Pat Toomey (R-PA) stressed the Fed should remain focused on risk supervision, remain isolated from political influence, and that forays into climate change and social justice are inconsistent with the Fed’s mandate.
Wall Street CEOs Testify on Capitol Hill
On May 26-27, CEOs from six of the largest Wall Street banks appeared before the Senate Banking Committee (SBC) and House Financial Services Committee (HFSC). Rep. Brad Sherman (D-CA) used the opportunity to ask panelists in turn if they believed federal legislation “is warranted to deal with the financial and legal fallout if there is not replacement rate for LIBOR?” He received a unanimous response “yes.”
Rep. Bill Huizenga (R-MI) also stated his intention to submit a question for the record to each CEO questioning “if SOFR is the answer to this problem?”
Democrats, including Chairman Sherrod Brown (D-OH), accused the executives of doing too little for working men and women and particularly those who are historically disadvantaged. Meanwhile, Republican Senators Pat Toomey (R-PA), Tim Scott (R-SC) and Bill Hagerty (R-TN) accused the CEOs of substituting shareholder capitalism for “stakeholder capitalism” and gearing corporate policies toward maximizing social outcomes and picking winners and losers in the economy. Senator Tina Smith (D-MN) also questioned the panel on whether the SEC should issue rules that create a standard disclosure framework for climate risk and was told there is great beneﬁt from consistency, and that without consistent metrics the disclosures are meaningless. Simultaneously across the Capitol, SEC Chairman Gary Gensler testified before the House Appropriations Subcommittee on Financial Services and General Government that climate and other disclosures are for investors who have proven that they care about a firm’s climate impact when making investment decisions, which has led the SEC to take actions toward standardized mandatory climate related disclosures.