BPInsights: April 24, 2021

Stories Driving the Week

Climate in Global Focus at Treasury, White House Summit

Climate was in the spotlight among policymakers this week as the White House held an Earth Day climate summit with world leaders in attendance.  

  • Treasury Secretary Janet Yellen said this week that her department will support global efforts to require companies to disclose climate risk, which the Securities and Exchange Commission is pushing to require.  
  • House Democrats also passed a slate of bills this week that would require firms to disclose ESG data. Republicans have decried such efforts as politicizing financial regulation.  
  • President Joe Biden announced a target to reduce U.S. emissions to 50-52 percent lower in 2030 than in 2005, a centerpiece pledge as part of a larger Administration climate blueprint.  
  • This week, Treasury also tapped John Morton, a former partner at green investment firm Pollination, as its first Climate Counselor.  
  • John Kerry, U.S. Special Presidential Climate Envoy and former Secretary of State, emphasized private-sector momentum for transitioning to a lower-carbon economy in a White House press briefing on April 22. He said the market is already headed toward a greener economy, predicted that the transition will create many jobs and expressed optimism that the U.S. can achieve its emission-cutting targets.  
  • White House Press Secretary Jen Psaki said at the briefing that the U.S. can either lead the effort to support cleaner energy technology or let China do so. She said there is an important role for government in speeding the low-carbon economic transition. 

BPI Meets with Treasury’s Adeyemo 

A group of BPI CEOs on April 19 met with Treasury Deputy Secretary Wally Adeyemo. Of note, Deputy Secretary Adeyemo discussed the state of the U.S. economy and the Treasury Department’s review of U.S. economic and financial sanctions. He explained “the sanctions review will seek to ensure that the Department’s implementation and enforcement of sanctions are relevant, rigorous, and fit to purpose, with the goal of advancing the national security, foreign policy and economic aims of the United States,” Treasury said in its readout of the meeting. Attendees also discussed economic inclusion. 

Lawmakers Sound Bipartisan Warning on Banking Backdoor for Big Firms 

Lawmakers in both parties cautioned against the risks of providing Big Tech and other large firms a backdoor into banking privileges with light oversight, according to a Roll Call article this week. The piece highlights comments from lawmakers at a recent House Financial Services Committee subcommittee hearing on Industrial Loan Company charters, which BPI has argued can give Big Tech easy access to behaving like banks without being bound by the usual banking rules that govern banks’ parent companies. “I’ve always said that if you want to be a bank, you need to be regulated like a bank,” said Rep. Blaine Luetkemeyer (R-MO), the top Republican on the subcommittee. Rep. Ed Perlmutter (D-CO), who chairs the subcommittee, said commercial firms entering financial services raises concerns about “market fairness and financial stability.” 

Bank of England Official: Climate Capital Rules Would Be ‘Back-Seat Driving’

Bank of England official Sarah Breeden this week indicated that financial regulators’ understanding of climate risks is not advanced enough to connect climate-related risk to bank capital requirements. Regulators are “much too immature in our understanding of these issues at the moment for capital to be a part of the answer right now,” Breeden said a conference, according to POLITICO. She called instead for climate risk disclosure to drive change. “More fundamentally, I don’t want to capitalize the system for risk for bad states of the world,” Breeden said. “What I want the financial system to do is manage the risk where that arises in the real economy. And obviously in principle we can use capital to do that. But it seems to me that’s back-seat driving, and the front seat is where governments and climate policy sit.” 
BPI has highlighted the limitations of stress testing for climate change in op-eds and blog posts. Such frameworks are constrained by data gaps and long time horizons. Linking climate stress tests to capital requirements would be a premature move that could politicize the economic stress testing framework and undermine its credibility. 

Banks Launch Net Zero Alliance

Citigroup, Bank of America, Barclays, BNP Paribas, HSBC, Santander and UBS were among the 43 global banks that formed the new Net-Zero Banking Alliance, announced April 21 as part of a broader climate-focused financial group by UN climate envoy Mark Carney, former Governor of the Bank of England. Several BPI member banks have made net zero pledges in addition to the effort. The group, known as the Glasgow Financial Alliance for Net Zero or GFANZ, “will work to mobilise the trillions of dollars necessary to build a global zero emissions economy and deliver on the goals of the Paris Agreement,” according to the announcement. 

BPI Working Paper on CBDC Featured in CNBC, American Banker

BPI CEO Greg Baer’s recent working paper on the implications of a U.S. central bank digital currency was cited in a CNBC piece this week, which covered bank analysts’ predictions on CBDC’s disruptive potential. The paper was also featured in an American Banker op-ed by Thomas Vartanian, which refers to CBDCs as a “financial Rorschach test” that provoke different implications depending on who considers them, and an article by Banking Dive’s Anna Hrushka. “To the extent that there are discussions, they tend to basically list a bunch of potential benefits with some potential costs, and then sort of be done with it,” Baer said in an interview for the piece. “You really have to play kind of policy ‘whack-a-mole’ and sort of look at each issue — both in isolation but then in relation to all the other issues.” The piece puts the working paper in a broader policymaking context with research efforts at the Federal Reserve Bank of Boston and MIT.  

In Case You Missed It

BPI, Joint Trades Express Support for Board Diversity Bill

BPI and a coalition of trades urged the House Financial Services Committee in a letter this week to pass legislation aimed at boosting diversity on corporate boards. The legislation, which would require disclosures on board diversity, passed the panel on a voice vote later in the week. 

Republicans to Kerry: Climate Push Would Politicize Banking, Harm Investors

Senate Republicans led by Banking Committee Ranking Member Pat Toomey (R-PA) expressed strong opposition in a letter this week to Democratic efforts to encourage banks to make climate-related commitments and to prioritize climate risk in financial regulation. The senators said in the letter, addressed to U.S. climate envoy John Kerry ahead of a White House climate summit, that such efforts – along with climate disclosure requirements, a policy priority of the SEC – amount to government overreach. The lawmakers also argued that an abrupt cutoff of fossil-fuel financing would saddle those firms with unproductive capital on their balance sheets, constrain growth and result in layoffs.  

Op-Ed: It’s Time for Transparency and Accountability at the Fed

The Federal Reserve should maintain more transparency and accountability about its payment systems and recent outages that disrupted it, Center for Freedom and Prosperity President Andrew Quinlan wrote in a RealClearMarkets op-ed this week. Especially as the Fed moves toward launching its own real-time payments system, it should open up to more oversight – particularly, Congress should investigate those system outages, Quinlan argued.

Former OCC Acting Chief Lands Top U.S. Job at Crypto Firm

Former Acting Comptroller of the Currency Brian Brooks will join cryptocurrency firm Binance as the new chief executive of its U.S. arm, the firm announced this week. Brooks will start the job on May 1. Brooks’ brief tenure atop the OCC was marked by a focus on allowing FinTechs, including cryptocurrency firms, into the banking system.  He is also known for pushing through at the midnight hour of his tenure the highly politicized “fair access” rule, which was intended to ensure oil & gas exploration companies and gun manufacturers could not be denied services by a bank.  In House testimony last week about giving ersatz bank charters to FinTech firms, and before his new role was announced, Brooks touted the promise of cryptocurrency and urged lawmakers to “be cautious about politicizing technology innovation.”  Like rain on your wedding day, as the singer Alanis Morrisette would say. 

House Passes Pot Banking Bill in Bipartisan Vote as Governors Urge Full Passage 

The House this week passed legislation that would ease the path for banks to do business with legal cannabis firms and their service providers despite the federal ban on marijuana, according to Bloomberg. The bill, called the SAFE Banking Act, passed with bipartisan support. The bill would provide banks servicing cannabis or related businesses with numerous legal protections, including barring federal banking regulators from taking certain actions against such banks. Medical marijuana is authorized in 36 states and four territories, while 17 states have authorized recreational use. But banks working with cannabis businesses can face federal scrutiny under anti-money laundering laws because the drug remains illegal under federal law. A bipartisan group of 21 governors urged Congress to pass the bill in a letter this week. 

DOJ Launches Ransomware Task Force

The Justice Department formed a new task force to combat ransomware cyberattacks, according to The Wall Street Journal. Acting Deputy Attorney General John Carlin said last year was the “worst year ever” in terms of cyberattacks using the digital extortion tactic. The new task force will increase training and dedicate more resources to the issue, improve intelligence sharing across DOJ and try to identify links between criminals and nation-states, according to the article, which cites a DOJ memorandum.  

Q&A: Sen. Cynthia Lummis (R-WY)

First-term Sen. Cynthia Lummis (R-WY), whose state offers Special Purpose Depository Institution charters to FinTech firms like crypto company Kraken, called in an American Banker Q&A article for the federal government to defer to states to regulate “innovation” in financial services. The federal governments should look to Wyoming’s example when it comes to regulating FinTech, she said. “We want to make sure that in states like Wyoming, a huge innovator in this space that has created laws that have allowed for the chartering of special purpose depository institutions, that we can have … the federal regulators look at these state laws and regulations around them as the prototype for federal regulation,” Lummis said. She and Sen. Kyrsten Sinema (D-AZ) founded the Financial Innovation Caucus to focus on FinTech issues.  

BPI has argued that the Wyoming SPDI charter allows risky business models, like that of Kraken, to imperil customer deposits. The Wyoming charter is one of the many lite-touch options for tech firms to expand their footprint in banking without the stringent supervision that governs banks. 

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The views expressed do not necessarily reflect those of the Bank Policy Institute’s member banks, and are not intended to be, and should not be construed as, legal advice of any kind.