By Pete Schroeder

WASHINGTON, (Reuters) – Former U.S. Federal Reserve Governor Sarah Bloom Raskin will be appointed to manage the Fed’s regulatory file. According to a source familiar with the matter, there will be a lot of work to do. Below are some key topics on the Fed’s regulatory agenda.

DE-REGULATION REDUX?

Quarles has led an overhaul of the regulations that were put in place following the global financial crisis. Quarles was accused by Democrats of saving Wall Street billions and increasing systemic risk.

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

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

So far the Fed has requested lenders to provide information on how they have mitigated climate change-related risks in their balance sheets. The industry is expected to complete a formal analysis of climate change scenarios by 2023 according to Reuters.

These projects should accelerate. It will be interesting to see if Quarles’ successor advocates for capital restrictions on banks that have significant exposures in polluting industries and other climate-related risks.

It is possible that the Fed will also approve climate risk lending guidance to big lenders, which Acting Comptroller Hsu stated banking regulators were working on.

FINTECH FRAMEWORK

Quarles will be Quarles’ successor. He or she will need to create a regulation blueprint for financial technology companies. These firms are fast threatening traditional banks.

Fed explores ways banks could interact with fintechs. Particularly with small lenders, which may seek to outsource infrastructure and services more efficiently. Fintechs also push the Fed to access its payment system.

Other banking regulators tried for many years to include fintechs within their regulatory framework, but the Fed has been resistant, afraid that it could pose systemic risk. However, as this sector expands, it is likely that the Fed will take action.

“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 developing a digital currency. This product could help expand the bank’s reach and speed up money transfers.

STRESS TESTS

Quarles will be looking at the annual health “stress tests” of banks.

Quarles attempted transparency and predictability in the bank’s tests, which included removing a objection called “qualitative”, that would have allowed the Fed subjectively to deny lenders. Quarles, according to Democrats, made the tests too straightforward.

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 LEVERAGE 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.

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. With other banks regulators, the Fed also has responsibility for the writing of these rules. It hopes they can be revised to reflect online banking’s growth while still making meaningful contributions in the areas that are less well off.

After disagreements among regulators, attempts to revise the Trump-era rules failed.