By Pete Schroeder

WASHINGTON (Reuters) – While the U.S. Federal Reserve’s next top regulatory official is still in the balance, one thing is certain: whoever gets the job will have a jam-packed agenda tackling the gamut, from capital rules and fair lending to digital assets and climate change.

Randal Quarles was elected to the Fed board in October by Donald Trump. He will now be the Vice Chair for Supervision, which is a crucial role in overseeing some of the largest banks. Vice chair for supervision Randal Quarles will be stepping down in October. President Joe Biden is yet to announce his replacement.

According to Washington insiders, Lael Brainard is the most likely candidate for this role. He was the Fed Governor and a top Treasury official under President Barack Obama. Sarah Bloom Raskin, an ex-Fed governor, Raphael Bostic (Atlanta Fed President), Acting Comptroller to the Currency Michael Hsu and Nellie Liang (U.S. Treasury sub-secretary) are just a few of other candidates.

Each candidate would be able to take over the position, but they would also need the support and endorsement of both the Fed chairman and board.

Analysts predict that any Democratic choice for the supervisor post will, regardless of whether they are progressive or centrist, be expected to set a new course and address a variety of pressing and sometimes thorny issues. These include:

CLIMATE CHANGE RISKS

Climate change, a top policy priority for Democrats, is expected to rapidly rise on the Fed agenda under new leadership.

Gregg Gelzinis from the Center for American Progress, senior policy analyst and chief policy advisor said that “climate is a major priority here.” There are some steps that the Fed could take quickly.

The Fed asked lenders to describe how they mitigate climate change-related risk to their balance sheets. Powell said that he was open to climate-focused stress testing.

These projects will likely accelerate. Quarles’ replacement will need to push for capital regulations and restrictions on banks with large exposures to climate risks or polluting industries.

According to Acting Comptroller Hsu, the Fed could also approve climate risk lending guidelines for large lenders. This month’s statement by Hsu indicated that banking regulators were working on it.

FINTECH FRAMEWORK

Quarles’ successor will also have to tackle a regulatory blueprint for “fintech” companies which are quickly chipping away at the traditional financial sector.

The Fed examines how fintechs can intersect with banks, especially with small lenders that might outsource infrastructure and services. Fintechs also want access to the Fed’s payments system.

The Fed, despite being urged by other regulators of banking, has so far resisted the idea, fearing that it could pose systemic risk. The Fed must act as this sector is growing.

“You hear a lot about the promise of fintech, but they should also be looking very closely at the risks,” said Tim Clark, a former Fed official who now works with the advocacy group Better Markets.

The Fed is also studying the potential implications of central bank digital currencies. The Fed Board and Federal Reserve Bank of Boston are expected to release studies in the next weeks. These studies will help the bank weigh the benefits and risks of the product. This could increase the Fed’s reach as well as speed up money transfers.

STRESS TESTS

Democrats criticized Quarles for revising rules introduced following the 2007-2009 financial crisis, and his successor is also expected to review his work. It is likely that the annual stress test health checks for banks will top the list.

Quarles tried making the tests transparenter and easier for banks. Quarles also removed a objection called “qualitative”, which allowed the Fed’s subjective ground to fail to approve lenders. Democrats feel that Quarles made the test too difficult.

Cowen Washington Research Group analyst Jaret Seiberg wrote last month that there would be changes in stress testing. These could include the directing of banks to keep eight quarters of their expected dividends as opposed to the four currently. Also, the possibility of reviving the qualitative objection.

SUPPLEMENTARY LEVERAGE RATIO

Another issue on the table is the supplementary leverage ratio, a rule created after the decade-ago crisis requiring banks to hold capital against assets regardless of their risk.

In the middle of the pandemic, the Fed needed to temporarily relax that rule as the glut of Treasury bonds and bank deposits drove up capital requirements for what were considered safe assets.

The Fed allowed that temporary relief to expire in March despite intense lobbying from banks, but said it would review the entire rule. Quarles is the next in line to take over as Fed President.

COMMUNITY REINVESTMENT ACT

The central bank will also play a key role in a long-awaited overhaul of the Community Reinvestment Act rules which promote lending in lower-income communities. With other regulators of banks, the Fed is responsible for the creation of the rules. The Fed hopes that the rules will be up-dated to keep pace with the rise in online banking and still ensure lenders are making meaningful contributions to those less fortunate.

The Trump administration’s attempts to make changes in the rules failed after the regulators couldn’t agree on the best way forward.

BASEL III

Lastly, the Fed still has to finalize capital rules dictated by the international Basel III accord. Most bank executives hope that the new board will address this quickly. Quarles, the Fed’s chief goal was to maintain overall capital requirements at a flat level. A Democratic successor may seek to increase capital cushion.