The Fed's climate work is facing unprecedented scrutiny

A Senate hearing on Thursday showed intense interest in the Federal Reserve's climate work as Republicans' fear of anti-oil banking policies gives a key nominee a rocky path to confirmation.

Driving the news: Senate Banking Committee Republicans pressed Sarah Bloom Raskin, President Biden's pick for the Fed's top banking cop, on whether she'd seek to limit credit to fossil fuel industries.

• They've pointed to past writing that calls for financial regulators to play a role in steering Wall Street away from high-carbon assets.

The big picture: There's growing consensus among economists and scientists that climate change presents financial risks due to the costs of extreme weather, sea level rise and other impacts.

• The Fed's direction was in the spotlight even before Raskin's nomination, thanks to top officials' pledges to boost risk analysis; climate activists' push for financial regulators to act more aggressively; GOP worries about mission creep and policies that hurt fossil fuels, and other forces.

Here are a few key takeaways...

1. Raskin sought to provide assurance on the limits of the Fed's role. While stressing the importance of the Fed's analysis of climate-related financial risks, she repeatedly said its rules and supervision should not pick winners and losers.

• "Banks choose their borrowers, not the Fed," said Raskin, a Duke University law professor who formerly served on the Fed board and in the Obama-era Treasury Department.

2. This was the most revealing exchange: Sen. Jerry Moran (R-Kan.) asked Raskin: "If it is your view that the oil and gas industry, fossil fuels, need to be diminished in the role of this nation, in our economy... Is there any path for you to accomplish that as a member of the Federal Reserve?"

• Raskin replied, "I certainly have not explored that and would imagine there is no such path."

3. Democrats sought to emphasize the importance of the Fed's climate analysis and called it a mainstream view.

• Sen. Elizabeth Warren (D-Mass.) yesterday noted Fed chairman Jerome Powell has also endorsed the need for a better understanding of banks' exposure to climate risks.
• "I don't support chair Powell's nomination for another term running the Fed. But even he thinks that it is just common sense that the Fed should work to mitigate the risk of significant economic loss triggered by climate change," she said at the hearing.

4. The confirmation battle will be close. GOP opposition to Raskin goes beyond the banking committee.

• Sen. Mitch McConnell, the minority leader, yesterday attacked Raskin's nomination, and a number of oil and coal industry groups are urging no votes.

• Sen. Pat Toomey (R-Pa.), the committee's top Republican, said he's unconvinced by Raskin's assurances, calling them a "remarkable" case of "confirmation conversion."
• He sees the Fed's "scenario analysis" of banks' climate risks as a stalking horse for policies like exposure limits on fossil holdings.
• Unless some GOP members break ranks, Raskin would need support from every Democrat including Sen. Joe Manchin of West Virginia — a major gas and coal-producing state — who has not yet stated a position.

What they're saying: Capital Alpha Partners' Ian Katz, in a note, sees a 55%-60% chance of confirmation, noting he's unsure she'll get support from every moderate Democrat.