On the anniversary of the police killing of George Floyd, Democrats on the Senate Banking Committee urged a Fed official to address racism as part of the central bank’s stewardship of the economy and financial system.

Chairman Sherrod Brown, D-Ohio, said bank deregulation pursued under President Donald Trump contributed to systemic racism. He directed his criticism at Federal Reserve Vice Chairman for Supervision Randal Quarles, who appeared before the committee Tuesday.

“When we say systemic racism we mean all the decisions people and institutions make that hold people and communities of color back,” Brown said. “You’ve issued rules that make it easier for the biggest banks to make risky bets instead of investing in the real economy. You failed to take action against banks for lending discrimination. Don’t these decisions contribute to systemic racism?” 

Quarles rejected the connection Brown drew between lifting banking restrictions and racism, adding that the Fed has aggressively investigated violations of fair lending laws. Quarles joined the Fed board in 2017.

“Read the history of the Fed. Read the history of housing discrimination,” Brown said in reply. “This Federal Reserve with you as vice chair has not really stepped up. It’s not just a moral issue. It’s an economic one.”

Brown cited research from the San Francisco Fed that found gender and racial disparities cost the U.S. $2.6 trillion in GDP in 2019.

Democrats pressed Quarles on plans to update rules implementing a 1977 community reinvestment law that requires regulators to encourage banks to meet the credit needs of the communities they serve, including low- and moderate-income people. The Fed oversees the implementation of the law jointly with the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation.

The OCC revised its implementing rule for community reinvestment in 2020, but this month said it would review it. Critics noted that both the Fed and the FDIC weren’t adopting the OCC rule, making it likely that different banks would face different rules. The Fed started reviewing its own rule last year. 

Democrats urged the Fed to issue an updated rule jointly with the OCC and FDIC. “This is an important civil rights law that should not be enforced in a piecemeal fashion,” said Sen. Bob Menendez, D-N.J.

“I have a sense that some of my colleagues would think that none of you have any role to play in terms of dealing with the great inequities in our society,” Menendez said. “I totally disagree with that. Certainly when you have oversight over the Community Reinvestment Act, this is a key tool to try to deal with some of the issues that we face today.”

Quarles said the Fed was in discussions with the two other agencies and hoped to issue a joint rule.

Sen. Patrick J. Toomey, R-Pa., the committee’s ranking member, criticized research on racism undertaken by regional Federal Reserve banks, including those in Minneapolis, Boston and Atlanta. 

“Some of the banks have appeared to engage in an activity that I think can fairly be characterized as advocacy with respect to systemic racism, which is a very controversial idea that somehow American laws and institutions, including I presume the Federal Reserve, are inherently racist in their design,” Toomey said.

He also criticized the Fed’s work on climate change, pointing out that severe weather events have not shuttered banks in the last 11 years, despite enduring four of the five costliest hurricanes in U.S. history. The focus on climate and race distracts from more pressing issues, including inflation and the recovery from the pandemic, Toomey said. 

Quarles defended the Fed’s work on climate change, and said the regional banks’ research may have a place within the regulator’s mandate. 

“Research into breaking down the effects of some of the large aggregate economic numbers, whether by geography, whether by different demographies, can be appropriate, but it should not cross the line into advocacy,” Quarles said. “It should be analysis.” 

He added that it’s “not only appropriate, it’s incumbent” on the Fed to establish a framework to address the risk climate change poses to the financial system. However, pursuing climate policy falls outside of the Fed’s mandate, he said.

“Our job is ensuring the resilience of the financial system, not advancing a particular view of climate policy,” Quarles said. “That’s for the Congress, perhaps other agencies. It’s not the job of the Fed or other financial regulators.”