By Pete Schroeder

WASHINGTON, (Reuters) – The U.S. Federal Reserve’s top regulator is currently in doubt, but one thing is sure: whoever is appointed will be a busy person with a wide-ranging agenda that covers everything from climate change and capital regulations to fair lending and digital assets.

Randal Quarles, who was appointed the Fed’s supervisor chief by the former Republican President Donald Trump will be leaving the central bank before the year ends. The nomination of the person to oversee Wall Street’s largest lenders has not been made public by President Joe Biden.

According to Washington insiders, Lael Brainard is the leading contender for this role. He was previously a top Treasury official under President Barack Obama. Sarah Bloom Raskin, an ex-Fed governor; Atlanta Fed president Raphael Bostic and acting Comptroller to the Currency Michael Hsu are some other names being considered. Nellie Liang is U.S. Treasury’s undersecretary.

Each person would take the lead and would need to get the support of both the Fed board and chair, which would be in balance in order to make 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. They include:

CLIMATE CHANGE RISKS

Under new Fed leadership, climate change will be a key policy priority for Democrats.

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

These projects will likely 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 in September 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 explores ways banks could interact with fintechs. Particularly with small lenders, which may seek to outsource infrastructure and services more efficiently. Fintechs lobby the Fed for access into its payments 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. The Fed Board and Federal Reserve Bank of Boston are expected to soon conduct studies on the potential benefits and risks of such products. This could help expand the bank’s reach and speed up money transfers.

STRESS TESTS

Quarles was criticised by Democrats for revising financial regulations following the 2008-2009 financial crisis. Quarles is expected to be reviewed by his successor. It is expected that the annual bank “stress tests” will be a top priority.

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’s leadership, Democrats claim that the tests were too simple.

Cowen Washington Research Group analyst Jaret Seiberg wrote that in September, stress tests would be changed. This could mean banks being directed to hold eight quarters instead of four of anticipated dividends and possibly reviving objection.

SUPPLEMENTARY LOEVERAGE RATIO

A second issue is the supplementary lever ratio. It was an established rule after the decade-old crisis that requires banks to keep capital in reserve against their assets regardless of how risky they are.

Because of the panic caused by a glut in bank deposits and Treasury bond, the Fed was forced to temporarily loosen that restriction. This is because capital requirements were higher for assets deemed safe.

Despite strong lobbying by banks, the Fed decided to let the March relief expire but still promised that it would revisit the general rule. Quarles, the successor to Quarles, has not yet published a proposal.

COMMUNITY REINVESTMENT Act

A long-awaited overhaul to the Community Reinvestment Act regulations, which encourage lending in low-income areas, will be a major role for the central bank. 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.

BASEL III

The Fed must also finalize the capital rules outlined in the Basel III international agreement. Many bank executives anticipate that the new board will quickly address these issues. 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.