: Banks favor Powell over Brainard to lead the Fed. Here’s why

U.S. bankers would clearly prefer another term for Jerome Powell as chairman of the U.S. Federal Reserve’s board of governors, rather than his main rival for the job, Lael Brainard, Fed watchers told MarketWatch.

It’s also possible that Brainard, a current Fed governor, could succeed Randal Quarles as vice chairman for supervision of the banking system. Quarles will leave the office at the end of December.

James A. Wilcox, a professor at the Haas School of Business at University of California, Berkeley, said Powell and Brainard “seem to be the only two horses in the race” as President Joe Biden announces his decision as expected by the end of this week.

See Also: Biden says announcement on Fed chair to come in about 4 days

“The path of least resistance is to re-nominate the incumbent,” Wilcox said. “In some ways, you have to think that Powell has been the Biden administration’s favorite Republican.”

Powell has delivered both monetary and fiscal policies for the Biden administration in terms of raising debt and providing economic stimulus, he said.

“It’s quite clear that [banks] are in favor of the status quo,” Wilcox said. “Brainard would probably be learning toward tougher regulations on banks in various ways and she also may be more sympathetic to a new form of competition coming from the crypto space, for example.”

For her part, Brainard has dissented more than 20 times on regulatory policy votes and has promoted the introduction of a counter-cyclical capital buffer that would exceed existing capital requirements. Another major regulatory push would center on reworking the Community Reinvestment Act, which has been a priority of Brainard.

Ed Mills, managing director and policy analyst at Raymond James, said the Biden administration’s picks for the Fed board will likely result in greater oversight of major banks such as JPMorgan Chase & Co.
Goldman Sachs

and Wells Fargo & Co.

Among those three, Wells Fargo has the most issues pending with federal regulators, including an asset cap that has constrained growth at the company.

“If Brainard is named as chairman, no one would be shocked but people would be surprised,” Mills said. “What we can expect is Biden will nominate a slate of candidates to the board and will select who will head up the shift at the Federal Reserve to a more progressive and aggressive stance on bank regulations from being more accommodative.”

Stress tests on banks administered by the Fed stand out as a likely place to put that stance into effect.

“They’ll be more stringent and the way in which they’re graded would be more aggressive,” Mills said.

Along with Brainard, another name in the mix for vice chairman of supervision is Sarah Bloom Raskin, a former member of the Fed’s board of governors and former deputy secretary of the Treasury.

Once Biden names his choices for the Fed, an approval vote from the Senate would loom large. A simple majority is all that’s need to OK a nominee, but it’s not guaranteed.

“Anyone viewed as acceptably aggressive could face a challenge in the Senate,” Mills said. “You could see potential compromises.”

BNP Paribas analysts noted recently that the appointment of Brainard would “send out a compelling message on diversity” as the second woman to hold the Fed chair job after Janet Yellen, who worked in the job from 2014-18. Yellen is now the first woman to hold the position of Secretary of the Treasury.

“While not meaningfully diverging from Powell in substance when it comes to climate, Governor Brainard has distinguished herself in form, delivering several climate-focused speeches and most recently calling for more direct Fed involvement in climate-related bank supervision,” BNP analysts said.

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