The Capital Note

The Capital Note: The Greening of the Fed?

Outside the Federal Reserve building in Washington, D.C. (Larry Downing/Reuters)

Welcome to the Capital Note, a newsletter (coming soon) about finance and economics. On the (abbreviated — Daniel Tenreiro is away) menu today: The Fed and climate change, Wells Fargo’s misery, Kentucky Fried Chicken — and a monumentally poor banking decision (even by the standards of banking decisions).

Is the Fed ‘Evolving’?
It is not a bad rule of thumb that, when something political is concerned and someone or something is described as “evolving” that is a bad sign.

So it was not altogether reassuring to read in the Wall Street Journal yesterday that, in the view of the Senate Democrats’ Special Committee on the Climate Crisis, “the Fed appears to be evolving on the issue of climate risks.”

Oh no.

To be fair, however, much of what the Fed has being doing is sensible. (Almost) wherever one stands on climate change (FWIW, I’m a “lukewarmer,” myself), improving resilience against weather-related damage is not only prudent, but generally also cost-effective. Low-lying coastal cities should, for example, toughen their defenses. The Fed appears to be trying to take an analogous approach regarding banks.

The Wall Street Journal:

While climate change, in terms of its impact on financial stability and on the Fed’s monetary policy activities, hasn’t been a front-line issue for the central bank, it has been increasingly a focus inside and outside the central bank over the past year or so.

While the Fed has left the broader response to a warming planet to elected officials, it has taken on the issue of how severe weather events will affect banks, pressing them to be prepared to deal with those types of shocks.

That seems to me to be entirely reasonable, not least the recognition that there are some policy areas that are better left to the democratic process than to technocratic fiat.

And Fed Chairman Powell, who cannot be unaware of the political sensitivities at play, has been taking a suitably cautious line.

The Journal again:

Powell in January said climate change is “a very important issue, but it’s essentially assigned to many other agencies in the federal government and state governments for leadership on that.” But he added, “The public has every right to expect and will expect that we will assure that the financial system is resilient and robust against the risks from climate change” and that “we are in the very early stages, as are other central banks, in understanding just what that means.”

This is not enough for some Democrats. According to Senator Brian Schatz (D., Hawaii), “American financial regulators and the American financial system should be leading, rather than following along with, whatever else is happening on the planet”, a comment that might suggest his atlas is missing the pages where China is generally found.

From The Financial Times in June:

Between 2000 and 2019, Beijing’s two leading policy banks — China Development Bank and Export-Import Bank of China — provided $183bn in energy finance to BRI [Belt and Road Initiative] countries, which went mostly to oil, coal and hydropower. This compares with the banks’ $4.8bn funding for solar and wind projects, according to data from Boston University’s Global Development Policy Center. . . .

A failure to improve environmental standards in 126 BRI-participating countries could push global temperatures up 2.7C, even if all other countries met their targets to reduce emissions, according to a report by Beijing-based Tsinghua Center for Finance and Development, consultancy Vivid Economics and the ClimateWorks Foundation, a non-profit [emphasis added].

In fact, what Schatz, and others like him, want is for the U.S. to sign up for the agenda now being set by the rather more bien-pensant parts of the “global community,” an agenda into which all sorts of vaguely leftist desiderata are smuggled all in the name of fighting climate change.

Meanwhile, the Democrats’ Special Committee is grumbling that the Fed has not joined the international Network for Greening the Financial System.

The Fed is quite right not to. As the Network’s name would suggest, it is about far more than improving climate resilience, something confirmed on its website:

The Network’s purpose is to help strengthening the global response required to meet the goals of the Paris agreement and to enhance the role of the financial system to manage risks and to mobilize capital for green and low-carbon investments in the broader context of environmentally sustainable development.

“Mobilize capital.”

Others, of course, want to ensure that capital does not go to the “wrong” places even in the middle of the current economic emergency.

The Wall Street Journal:

Recently, the Fed has come under pressure from some critics for its purchases of fossil fuel company bonds, as part of a broader emergency effort to support corporate credit markets during the coronavirus pandemic. While the central bank energy bond buying is modest, critics, including one former central banker, contend that the Fed should offer no support to companies whose activities exacerbate climate change.

Some jobs are less equal than others, it seems.

— A.S.

Around the Web
And speaking of climate-conscious central bankers . . .

The Financial Times:

Mark Carney is joining asset manager Brookfield to launch an “impact investing” fund focused on social and environmental benefits as well as financial returns, in his first big business role since his near seven-year term as Bank of England governor ended in March.

Mr Carney has long been an advocate of more activist policies on climate change. While governor of the BoE, he launched the bank’s first climate-related stress tests and he has warned about the risks of coal, oil and gas investments in a world that is trying to limit greenhouse gas emissions.

Not So Well Fargo

Hitting banks with multibillion-dollar fines grabs headlines, but a Federal Reserve cap on Wells Fargo & Co.’s assets is becoming the industry’s true terror.

The wonky sanction devised by the Fed in early 2018 to force Wells Fargo to address a series of scandals is turning into one of the costliest punishments ever levied by a single regulator. By one method of estimating, Wells Fargo has missed out on roughly $4 billion in profits — and counting — since the cap was imposed, and it’s unclear when the Fed will lift it.

In the time of coronavirus, nothing is sacred:


The pandemic has put on pause one of the corporate world’s longest-serving ad slogans. “It’s finger lickin’ good” has been KFC’s tagline on and off for more than 60 years. Commercials would routinely feature people mawing their – and other people’s – digits after scarfing down a bucket of fried chicken. It wasn’t the most appealing imagery at the best of times, but during Covid-19 it started to smack more of a horror movie.

In the United Kingdom and Ireland, KFC has been blurring out the famous phrase, replacing it with: “That thing we always say? Ignore it. For now.” The Yum Brands-owned fast-food chain cited the pandemic, social distancing, mask-wearing as well as basic hygiene for the reason, with Chief Marketing Officer Catherine Tan-Gillespie adding in a press release “doesn’t quite fit the current environment.”

Random Walk
From Bankers and Bolsheviks: International Finance & The Russian Revolution, by Hassan Malik:

On 27 November — nearly three weeks after the Bolshevik takeover — the First National City Bank of New York opened its Moscow Branch at the National Hotel, directly opposite the Kremlin and within sight of Red Square. The location was especially ironic, as the luxury hotel served as a key Bolshevik outpost in the city, Lenin, Stalin, and the American communist John Reed all stayed at the National in the early days of the revolution, and would have rubbed shoulders with the American bankers passing through the small lobby.”

It didn’t work out.

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