Banks and asset managers will face scrutiny from Congress over their “ESG agenda”, according to a senior Republican lawmaker, underscoring tensions to come between the new House majority and the U.S. financial sector.
The comments from Andy Barr, chairman of the House Financial Services Subcommittee on Financial Institutions and Monetary Policy, launch a fresh salvo to Wall Street banks and asset managers for their social and climate goals.
“We believe banks should be apolitical. Banks shouldn’t be a political party,” the Kentucky lawmaker said in an interview at his Capitol Hill office. “Banks should serve creditworthy borrowers and focus on their shareholders’ profits and profitability.”
Republicans, from potential presidential hopefuls such as Florida Governor Ron DeSantis to state officials, have in recent months stepped up attacks on Wall Street and corporate America for allegedly being too “woke.”
After taking control of the House, Congressional Republicans will now have the power to open a new front in this push by holding public hearings and demanding more information from financial institutions about their employment and lending practices. .
“We want to promote the depoliticization of our capital markets. For our country to be economically competitive, we need our financial system to provide equal access to capital to all kinds of businesses,” Barr said. He added that his concern was that the US financial system has been “co-opted by the intolerant left that does not tolerate diversity.”
In addition to having jurisdiction over the banks, Barr also has primary responsibility for overseeing the Federal Reserve. He said the U.S. central bank should also expect more scrutiny from Capitol Hill if it sets its own climate-related targets for financial institutions, including in its stress tests.
“We want the Fed to stick to its dual mandate of price stability and full employment. To the extent that they get into this game of capital allocation and climate finance and this network for greening the financial system, that’s when our reform agenda will kick into high gear,” said he declared.
Fed Chairman Jay Powell is expected to steer the central bank toward a slowdown in monetary tightening at next week’s Federal Open Market Committee meeting, with interest rates rising 25 basis points from the rise of 50 basis points in December. Barr warned the Fed not to let go prematurely.
“The Fed needs to be brave. We don’t want a return to the 1970s when there was a failure to control inflation and the inflation problem persists,” Barr said. He also said the Fed should not raise its inflation target, which currently averages 2%. “They have to stick to their 2% and they have to get there.”
On the regulatory front, Michael Barr, the Fed’s vice chairman for oversight and former Treasury official in the Barack Obama administration, led a “holistic” review of capital rules for U.S. financial institutions – announcing may – be a change in the central position of the bank.
The Kentucky lawmaker said he was concerned “draconian additional capital requirements” would be introduced, even though Powell said the existing ones were appropriate.
“Separate capital, prevent the banking system from deploying capital into the real economy. It’s not going to help fix supply chains. It’s not going to help business investment, capital spending. We need capex to correct supply, to correct inflation,” said Andy Barr.
He also said that in implementing the Basel III capital rules for global banking standards, the United States should not “go faster than Europe”, or “we are going to put our institutions in a disadvantageous competitive position”.
Arguably the biggest risk to the US and global financial system this year would be a failure to raise the country’s borrowing limit by $31.4 billion, which could trigger a default.
House Republicans are demanding spending cuts and reforms in exchange for an increase in the US debt ceiling. Democrats and the White House have said the measure should pass unconditionally because it pays off debt accumulated by both parties over time. They say Republicans are only reverting to fiscal conservatism and putting conditions on raising the debt ceiling under Democratic presidents.
Barr offered few signs that the standoff will soon be resolved. He blamed Democrats for being “cynical and hypocritical” in failing to raise the debt ceiling in the past two years when they controlled both houses of Congress and called for talks.
“Avoiding default is obviously of crucial importance and we are not going to default. The full faith and credit of the United States is very important, but if we do not demand reform in exchange for an increase in the debt ceiling, what good is the debt ceiling law? ” He asked.
“The tightrope strategy is not good for the economy, not good for the financial system. But I think what’s reckless and irresponsible is the White House saying it won’t negotiate.
