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FRB Vice Chair Of Supervision Barr Gives First Speech Since Taking Office – Financial Services

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Federal Reserve Vice Chair of Supervision Michael Barr gave remarks yesterday to the Brookings Institution
in Washington, D.C. The speech was his first since being sworn in
at the end of July and served as a good indicator of
his policy agenda.

In the speech, Vice Chair Barr laid out some of his near-term
priorities that would build on what has worked since implementation
of the Dodd-Frank Act to achieve his overarching goals of
“helping to make the financial system safer and

He emphasized that the goals of both a safer and fairer
financial system should be complementary rather than competing. He
noted that keeping the financial system safe “involves an
active and never-ending effort to analyze risks and make necessary
adjustments.” Vice Chair Barr laid out a number of his
near-term priorities that could be characterized under the safety
goal. The near-term goals include action on capital requirements,
resolution of failed/failing financial institutions, bank merger
policy review, stablecoins, and financial risks from climate
change. We summarize some of the particulars on each below.

Capital: Vice Chair Barr stated that “[w]e are looking
holistically at our capital tools to understand how they are
supporting the resilience of the financial system, individually and
in combination.” He also noted that they will be taking a
holistic view of the supplementary leverage ratio, the
countercyclical capital buffer, and stress-testing requirements
under the current rules. Moreover, he said, “I am also
committed to implementing enhanced regulatory capital requirements
that align with the final set of ‘Basel III’ standards or
the so-called ‘Basel endgame,'” and that he will have
more to say on that this fall.

Resolution Planning: Vice Chair Barr said that the Fed would
continue to work with the FDIC to “rigorously review” the
resolution plans required for globally systemically important banks
(“G-SIBs”). He also seemed to echo Acting Comptroller
Michael Hsu’s remarks made in April that resolution plans should possibly be
required beyond just G-SIBs, but noted that any future policy
actions in that space would be developed with the FDIC and OCC and
after public comment.

Bank Merger Policy Review: Vice Chair Barr
stated that another of his priorities is to evaluate the FRB’s
approach to reviewing bank mergers and acquisitions. He noted:
“I am working with Federal Reserve staff to assess how we are
performing merger analysis and where we can do better.”

Stablecoins: Vice Chair Barr noted that
unregulated stablecoins could pose financial stability risks. He
said: “I believe Congress should work expeditiously to pass
much-needed legislation to bring stablecoins, particularly those
designed to serve as a means of payment, inside the prudential
regulatory perimeter.” This is another instance where Vice
Chair Barr’s comments appear to echo Acting Comptroller Hsu’s previous

Financial Risks from Climate Change: Vice Chair
Barr stated that, in the near-term, the FRB intends to work with
the OCC and FDIC to provide guidance to large banks on expectations
on how they should “identify, measure, monitor, and manage the
financial risks of climate change.” He also announced that
“next year we plan to launch a pilot micro-prudential scenario
analysis exercise to better assess the long-term, climate-related
financial risks facing the largest institutions.”

Vice Chair Barr then turned to priorities to achieve his
objective of making the financial system fairer. He reiterated what
he views as the three essential elements of fairness in the
financial system: financial capability, financial access, and
consumer protection. He noted that innovation has an important role
to play in giving more access to those who may have been left
behind in the past, but that vigilance is needed in assessing any
new risks with such innovation, and specifically that
“[c]rypto-asset related activity, both outside and inside
supervised banks, requires oversight so that people are fully aware
of the risks they face.” He noted that the innovation of
faster payments could be very useful to helping low-income
households. He closed his remarks on fair access to financial
services by noting the ongoing efforts by the FRB, FDIC, and OCC on
the proposal to strengthen and modernize the
Community Reinvestment Act.

In his conclusion, Vice Chair Barr said that he will “have
more to say about these ideas, and other important reforms, in the
coming weeks and months.”

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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