Banks and asset managers will face scrutiny from Congress on their “ESG agenda”, according to a senior Republican lawmaker, pointing to the tension ahead between the new House majority and America’s financial sector.
Comments by Andy Barr, chairman of the House financial services subcommittee responsible for financial institutions and monetary policy, fired a new salvo at Wall Street banks and asset managers for social and climate goals.
“We think that banks should be non-political. Banks should not be political parties,” said the Kentucky lawmaker in an interview in his office on Capitol Hill. “Banks must serve creditworthy borrowers and focus on income and profits for shareholders.”
Republicans from potential presidential candidates such as Florida governor Ron DeSantis to state officials have in recent months stepped up attacks on Wall Street and American companies because they are allegedly too “wake up”.
After gaining control of the House, congressional Republicans will now have the power to open a new front in the push by holding public hearings and demanding more information from financial institutions about their work and lending practices.
“We want to promote the depoliticization of our capital market. In order for our country to be economically competitive, we need a financial system to provide equal access to capital for all types of businesses,” said Barr. He added that he was concerned that America’s financial system had been “co-opted by an intolerant left that has no tolerance for diversity”.
In addition to having jurisdiction over the bank, Barr also has primary responsibility for overseeing the Federal Reserve. He said the U.S. central bank should also seek more input from Capitol Hill if it sets climate-related goals for financial institutions, including in stress tests.
“We want the Fed to adhere to the dual mandate of price stability and full employment. To the extent that they ask for this game of capital allocation and finance climate and this network for the greening of the financial system, that when our reform agenda will kick into high gear,” he said.
Jay Powell, the Fed chairman, is expected to steer the central bank toward a slower rate of monetary tightening at next week’s Federal Open Market Committee meeting, with a 25 basis point interest rate hike compared to a 50bp increase in December. Barr warned the Fed not to stop early.
“The Fed needs to have power. We don’t want to go back to the 1970s when there was a failure to control inflation and then the problem of inflation remains,” said Barr. He also said the Fed should not raise its inflation target, which currently averages 2 percent. “They should stick with 2 percent and they should get there.”
On the regulatory front, Michael Barr, the Fed’s vice-chairman for supervision and a former Treasury official in the Barack Obama administration, has conducted a “holistic” review of the capital rules for US financial institutions – possibly indicating a change in the center. attitude of the bank.
The Kentucky lawmaker said he was concerned that “onerous capital requirements” could be introduced, although Powell said existing ones were appropriate.
“Capital sidelining, preventing the banking system from deploying capital in the real economy. This will not help fix the supply chain. It will not help business investment, capex. We need capex to fix the supply side, to fix inflation,” said Andy Barr.
He also said that in the implementation of Basel III capital rules for global banking standards, the US should not “move faster than Europe”, or “we will put our institutions at a competitive disadvantage”.
Perhaps the biggest risk to the US and the global financial system this year is a failure to raise the $31.4tn national debt limit that could lead to a debt default.
House Republicans are demanding spending cuts and reforms in exchange for raising the US debt ceiling. Democrats and the White House say the measure should be passed without strings attached because of debt repayments carried by both parties. He said Republicans are simply returning to fiscal conservatism and attaching conditions for a debt ceiling increase under a Democratic president.
Barr gave few signs that the stand-off would be resolved soon. He blasted Democrats for “cynicism and hypocrisy” for failing to raise the debt limit over the past two years while controlling both chambers of Congress, and called for talks.
“Avoiding default is obviously very important and we will not default. The full faith and credit of the United States is very important, but if we do not demand reform in exchange for raising the debt limit, what is the purpose of the debt limit law to begin with?” he asked.
“Brinkmanship is not good for the economy, it’s not good for the financial system. But I think it’s reckless and irresponsible for the White House to say it’s not going to negotiate.