WASHINGTON (BLOOMBERG) - Wall Street is getting a major reprieve from tougher oversight after President Joe Biden's pick to be the top United States banking regulator ran aground.
Progressives had pinned their hopes on Duke University law professor Sarah Bloom Raskin - a Washington insider who previously held high-level jobs at the Treasury Department and the Federal Reserve - to help bring about an era of much tougher oversight for the nation's largest lenders. Those plans, and expectations for the Fed to play a bigger role in combating climate change, are now in disarray after she failed to win enough support in the Senate.
Prof Raskin faced stiff opposition from Republicans to be the Fed's vice-chair for supervision since she was nominated in January despite easily winning confirmation to serve as Fed governor and then deputy Treasury secretary earlier in her career. Senator Pat Toomey of Pennsylvania, the top Republican on the Senate Banking Committee, led the effort to refuse a vote on her candidacy, citing her previous comments on fighting global warming and questions around her work for a Colorado fintech company.
Her exit means that Mr Biden's four other Fed nominees - including the reappointment of chair Jerome Powell - are likely to move through the committee to a vote by the full Senate.
While Prof Raskin described the opposition as "diversionary attacks on my ethics and character" as she withdrew her name from consideration on Tuesday (March 15), the fallout from her exit is unmistakable: a clear victory for GOP lawmakers and bankers who were leery of her policy views.
It was unclear if the President intends to nominate someone else in the coming days. White House officials declined to comment on Tuesday evening.
Without a clear alternative candidate, the position could remain open heading into US midterm elections in November, when Republicans may recapture the Senate - a result that would make it all but impossible to confirm a progressive candidate for the job.
"It's becoming clear that the supervision post will be vacant for a while," Mr Ian Katz, an analyst at Capital Alpha Partners, said in a note to clients. "In the context of financial regulation, it's hard to overstate how much of a lost opportunity this was for the Democrats."
As the Fed is charged with monitoring Goldman Sachs, JPMorgan Chase and other massive financial firms, the post of vice-chair for supervision is seen as the most powerful bank regulator in Washington.
In addition to setting rules in arcane areas that go right to lenders' bottom lines like balance sheet liquidity and capital levels, the person in that position oversees closely watched annual stress tests that review bank safety. Yet it has been filled for just four of the years since the role was established under the Dodd-Frank law of 2010, enacted following the global financial crisis.
Prof Raskin was expected to lead the Biden administration's push to bring much tougher day-to-day oversight of banks, which had enjoyed a relatively light-touch approach to supervision and enforcement during the Trump administration. The last person to hold the job, Mr Randal Quarles - a former bank investor and executive at private equity giant Carlyle Group - was too sympathetic to the industry, critics said.
At the same time, financial firms had also been bracing for the Fed under Prof Raskin to become more reticent to sign off on mergers between regional lenders. The issue has become a rallying call for liberal Democrats who argue that the process for winning approval has effectively become a rubber stamp.
In Prof Raskin's confirmation hearing in February, she sought to counter Republican criticism that she had use her perch to impose policies targeting the oil and gas industries by saying the supervision role was not about picking favourite industries.
Prof Raskin said in her withdrawal letter to Mr Biden on Tuesday that she believes the "perils of climate change must be added to the list of serious risks that the Federal Reserve considers as it works to ensure the stability and resiliency of our economy and financial system".
"This is not a novel or radical position," she wrote.