The Federal Reserve has announced its decision to withdraw from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). Five out of the seven governors, led by Chair Jerome Powell, voted in favor of this move. The decision comes as the central bank seeks to distance itself from potential criticism from the incoming Trump administration. This marks a significant shift in the Fed’s stance since joining the NGFS in December 2020, following President Joe Biden’s election.
The Fed expressed its appreciation for its collaboration with the NGFS, an international coalition comprising over 140 central banks and financial regulatory agencies dedicated to integrating climate change considerations into financial regulation. However, the decision to leave was encapsulated in a concise statement, emphasizing the institution's intent to avoid political scrutiny.
Chair Jerome Powell continues to serve on the Fed's governing board, maintaining his influential role within the central bank. Meanwhile, Governors Michael Barr and Adriana Kugler abstained from the vote. Notably, Michael Barr, who spearheaded the Fed's financial regulatory initiatives, is set to step down as vice chair for financial supervision by the month's end.
The Fed's participation in the NGFS had attracted criticism from Republican members of Congress. Their concerns centered around the integration of climate considerations into bank regulations, a stance echoing a paper co-authored by Stephen Miran, a top White House economic adviser. This paper critiques the Fed's approach to climate change issues within its regulatory framework.
The NGFS plays a pivotal role in encouraging central banks worldwide to adopt green finance principles, addressing climate change through financial regulation. The Fed's departure from this network underscores a strategic move to minimize friction with the incoming administration, showcasing a broader trend of navigating political waters in policy decisions.
