By Pete Schroeder

WASHINGTON (Reuters) – As the race for the Federal Reserve’s next top regulatory official heats up, 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.

The latest development in the search for the Fed’s vice chair of supervision came on Tuesday when the Wall Street Journal reported the White House was considering Sarah Bloom Raskin, a former Fed governor and former Treasury Department official, for the role.

Others include Raphael Bostic, Atlanta Fed president; Michael Hsu, acting Comptroller for the Currency; Nellie Liang, U.S Treasury under-secretary; Mehrsa Barradaran, a former law professor, who was previously considered for the Comptroller position; and Richard Cordray who headed the Consumer Financial Protection Bureau.

Randal Quarles was appointed Fed supervision chief in October. Quarles will be leaving at the close of the year. Although the White House stated last month it will nominate Jerome Powell Fed chair, the White House remained vague on the question of who would be taking over the powerful supervision role that oversees Wall Street’s most prominent lenders.

Washington insiders and analysts had believed for a long time that Lael Brainard was the best candidate to be Fed Governor. However, she will now take over the Fed’s vice chair position focused on economics and monetary policies.

Each candidate would be able to take over the role, and each would also need the support and backing of Fed Chair and Board, which both are in balance to bring about major changes.

Analysts say that any Democratic choice for the post of supervision, regardless of whether they are progressive or centrist, will have to set a new course and address a variety of pressing and sometimes thorny problems. These are:

DE-REGULATION REDUX?

Quarles has led an overhaul of the regulations that were put in place following the global financial crisis. Quarles is accused of saving Wall Street millions of dollars and increasing systemic risks.

Among the most contentious changes were revisions to the “Volcker Rule” curbing speculative bank investments; scrapping a requirement for big banks to hold capital against certain swap trades; and stripping the Fed of its power to fail banks on their annual “stress tests” based on subjective concerns.

This will be an expensive and time-consuming decision that the new chief of supervision must make.

CLIMATE CHANGE RISKS

The Fed’s agenda for climate change under new leadership is likely to quickly rise.

The Fed asked lenders to describe how they mitigate climate-related risk to their balances so far. The industry expects to move to a formal climate scenario analysis by 2023, Reuters reported.

These projects should accelerate. Quarles’ replacement will need to push for tighter capital requirements and restrictions on banks with large exposures to the polluting industry or climate-specific risks.

The Fed could also approve climate risk lending guidance to big lenders, which Acting Comptroller Hsu stated that banking regulators were working on.

FINTECH FRAMEWORK

Quarles’ successor must also address a regulatory framework for fintech companies, which are rapidly threatening the traditional financial industry.

Fed examines how banks can interact with fintechs. This is especially important for smaller lenders who may be able to outsource additional services or infrastructure. Fintechs also push the Fed to access its payment system.

The Fed, despite being urged by other regulators of banking, has refused to allow fintechs to be included under its regulatory umbrella. This is because it fears that this could lead the systemic risks. The Fed will likely act as the sector grows.

“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 potential implications for a digital currency central bank. Fed Board studies and Federal Reserve Bank of Boston will soon be available. The central bank wants to evaluate the benefits and risks of such products, which can help increase its reach and accelerate money transfers.

STRESS TESTS

The annual stress test health check for banks is likely to top the Quarles’ list of changes Democrats want to see.

Quarles attempted to make bank tests easier and more predictable. Quarles also scrapped a “qualitative objection” that permitted the Fed to fail lenders on subjective grounds. Quarles, according to Democrats, made the tests too straightforward.

Cowen Washington Research Group’s Jaret Seiberg said in September that changes to stress testing would most likely occur in 2023. These could include banks being instructed to keep eight quarters of their expected dividends in reserve, rather than the four currently.

SUPPLEMENTARY LOEVERAGE RATIO

The supplementary leverage ratio is another issue. This rule was created in the aftermath of the crisis decade ago and requires banks to have capital for assets, regardless of 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 the relief to expire in March despite intense lobbying from banks, but said it would review the entire rule. Quarles, the successor to Quarles, has not yet published a proposal.

COMMUNITY Reinvestment Act

In a much-anticipated overhaul of Community Reinvestment Act rules that promote lending to low-income communities, the central bank will play an important role. Along with the other regulators of banks, the Fed is responsible for the creation of the rules. The Fed hopes that the rules will be up-to-date to keep pace with the rise in online banking and still ensure lenders are making meaningful contributions to those less fortunate.

After regulators failed to agree on a way forward, efforts to amend the Trump Administration’s rules fell apart.