Republicans vow to probe US banks and asset managers’ ‘ESG agenda’ in Congress

Banks and asset managers will face scrutiny from Congress on their “ESG agenda”, according to a senior Republican lawmaker, pointing to tensions ahead between the new House majority and America’s financial sector.

The comments by Andy Barr, the chair of the House financial services subcommittee responsible for financial institutions and monetary policy, fire a new salvo at Wall Street banks and asset managers for their social and climate goals.

“We think that banks should be non-political. Banks should not be a political party,” the Kentucky lawmaker said in an interview at his office on Capitol Hill. “Banks should serve creditworthy borrowers and focus on earnings and profitability for their shareholders.”

Republicans from potential presidential candidates such as Florida governor Ron DeSantis to state officials have in recent months stepped up attacks on Wall Street and corporate America for allegedly being too “woke”.

After gaining control of the House, congressional Republicans will now have the power to open a new front in that push by holding public hearings and demanding more information from financial institutions about their employment and lending practices.

“We want to promote the depoliticisation of our capital markets. In order for our country to be economically competitive we need our financial system to provide equal access to capital to all kinds of businesses,” Barr said. He added that his concern was that America’s financial system had been “co-opted by the intolerant left that is intolerant of diversity”.

As well as having jurisdiction over banks, Barr also has primary responsibility for overseeing the Federal Reserve. He said the US central bank should also expect more scrutiny from Capitol Hill if it sets its own climate-related goals for financial institutions, including in its stress tests.

“We want the Fed to stick to their dual mandate of price stability and full employment. To the extent they get into this game of capital allocation and climate finance and this network for the greening of the financial system, that’s when our reform agenda would kick into high gear,” he said.

Jay Powell, the Fed chair, is expected to steer the central bank towards a slower pace of monetary tightening at next week’s Federal Open Market Committee meeting, with a 25 basis point interest rate increase compared to the 50bp rise in December. Barr warned the Fed not to let up prematurely.

“The Fed needs to have some fortitude. We don’t want a return to the 1970s where there was a failure to get inflation under control and then having the inflation problem persist,” Barr said. He also said the Fed should not raise its inflation target, which is currently 2 per cent on average. “They need to stick with their 2 per cent and they need to get there.”

On the regulatory front, Michael Barr, the Fed’s vice-chair for supervision and a former Treasury official in the Barack Obama administration, has been conducting a “holistic” review of the capital rules for US financial institutions — possibly heralding a change in the central bank’s stance.

The Kentucky lawmaker said he worried that “additional strenuous capital requirements” could be introduced, even though Powell has said the existing ones are appropriate.

“Sidelining capital, preventing the banking system from deploying capital in the real economy. That’s not going to help fix supply chains. That’s not going to help business investment, capex. We need capex to fix the supply side, to fix inflation,” Andy Barr said.

He also said that in the implementation of Basel III capital rules for global banking standards, the US should not “move faster than Europe”, or “we’re going to put our institutions at a competitive disadvantage”.

Arguably the biggest risk to the US and global financial system this year would be a failure to raise the country’s $31.4tn borrowing limit that could trigger a debt default.

House Republicans are demanding spending cuts and reforms in exchange for increasing the US debt ceiling. Democrats and the White House have said the measure should be passed without strings attached because it pays for debt racked up by both parties over time. They say Republicans only revert to fiscal conservatism and attach conditions to debt ceiling increases under Democratic presidents.

Barr offered few signs that the stand-off will be resolved soon. He blasted Democrats for being “cynical and hypocritical” in failing to have raised the debt limit over the past two years when they controlled both chambers of Congress, and called for talks.

“Avoiding default is obviously critically important and we’re not going to default. The full faith and credit of the United States is very important, but if we don’t demand reforms in exchange for raising the debt limit, what is the purpose of the debt limit law to begin with?” he asked.

“Brinkmanship is not good for the economy, not good for the financial system. But I think what’s reckless and irresponsible is the White House saying they won’t negotiate.”