MNI: Barr Stresses Safer Financial System in Debut Speech

Federal Reserve Vice Chair for Supervision Michael Barr on Wednesday stressed the need to make the make the financial system safer and fairer for households and businesses during his first speech since being appointed by President Joe Biden, while noting the central bank will be considering adjustments to capital requirements, including the supplementary leverage ratio.

In a broad, high-level speech laying out some of his near-term agenda, Barr said the Fed will be taking a broad view while considering adjustments, if any, to the supplementary leverage ratio, countercyclical capital buffer, and stress testing.

"We are looking holistically at our capital tools to understand how they are supporting the resilience of the financial system, individually and in combination," he said. "When calibrating requirements, we will work to minimize unintended consequences, limit opportunities for gaming, and avoid excess compliance costs that do not result in risk reduction."

Some Fed officials have pointed out their liquidity concerns as the central bank rolls off assets from its balance sheet. Cleveland Fed President Loretta Mester told MNI Wednesday she's more concerned about the potential for quantitative tightening to constrain market liquidity than its effect on financial conditions.

Barr said he is also committed to working with other banking agencies and soliciting public input to implement enhanced regulatory capital requirements that align with the final set of “Basel III ”standards, or the so-called “Basel endgame.”

PRIORITIES

The new top regulator shed light on other priorities as well, including looking at stablecoins, bank mergers, firms’ plans for failures, consumer protection and climate change risks.

Barr said he intends to work with other regulators to "provide guidance to large banks on how we expect them to identify, measure, monitor, and manage the financial risks of climate change."

"In that regard, 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," he said. "In addition, we are considering how to develop and implement climate risk scenario analyses."