U.S. bank stocks rose on Monday after President Joe Biden nominated Jerome Powell for a second term as Federal Reserve chairman and picked Lael Brainard for the No. 2 spot. But the White House for now has left open the critical vacancy on the Fed oversight of banks.
Brainard’s name had come up as a possible replacement for departing Trump appointee Randal Quarles as the top bank regulator at the Fed. But that position now remains open for another Biden nominee who could take adversial stance.
“A lot of investors are probably comfortable with Powell as a known entity,” said Ian Katz, managing director of Capital Alpha Partners, in an email to MarketWatch. “The eventual vice chair for supervision, not the vice chair, will drive the bus on regulatory matters. That person will be more aggressive on regulatory matters than the Fed has been under Randy Quarles in that position, but investors already know that.”
Shares of Dow Jones Industrial Average
DJIA,
components JPMorgan Chase
JPM,
and Goldman Sachs
GS,
rose by 2.3% and 2.1% respectively, outpacing the 0.7% rise by the broad index.
Bank of America
BAC,
jumped 2.5%, Wells Fargo
WFC,
rallied by 3.5% and Citigroup
C,
rose by 2.1%. The KBW Nasdaq Bank Index
BKX,
rose 2.1%.
In a research note on Monday, Katz said he’s not surprised Brainard took the vice chair spot over vice chair for supervision.
“We had been musing for a while that the supervision job just wasn’t big enough for her after having been a candidate for both Fed chair and Treasury secretary at different times,” Katz said.
The role of vice chair for supervision will likely remain vacant for a while, with potential candidates including Atlanta Fed president Raphael Bostic, former Fed governor Sarah Bloom Raskin and acting comptroller of the currency Michael Hsu, among others. Former Fed vice chairman Roger Ferguson could also be in the mix.
Monday’s announcement could pave the way for the Fed to OK some major bank acquisitions, but those administrative hurdles may have to wait until the U.S. Senate confirms Powell, Katz said.
Cowen analyst Jaret Seiberg said Biden may use the vice chair of supervision nomination as a bargaining chip to win votes for Powell and Brainard from the liberal wing of the Democratic Party in the Senate. The process could take a year, he said.
“He could pick a vice chair of supervision that progressives want in exchange for their votes for the two,” Seiberg said in a research note.
Cowen’s top contender for the vice chair of job is Atlanta Fed chief Bostic.
“Not only would he be a pragmatic pick, but he also would help Biden answer demands for more diversity on the Federal Reserve Board,” he said. “It is hard to see how Democrats or Republicans could oppose his selection, though progressives may not see him as sufficiently tough on big banks.”
Other potential names include Sarah Bloom Raskin, the former Treasury official.
“We believe she would be more negative for banks than other picks,” he said. “Any choice will push higher capital and tougher [stress] tests, but we see Raskin as more political and less pragmatic.”
This post was originally published on Market Watch
