MNI BRIEF: Fed Focused On Financial Risks, Barr Will Testify

The Federal Reserve is keeping a close eye on possible threats to financial stability that could emerge as it tightens monetary policy to contain high inflation, Fed Vice Chair for Supervision Michael Barr will tell Congress Tuesday.

"Uncertainty has led to increased financial market volatility and may also reveal pockets of excess leverage and liquidity risk in the non-bank financial sector, which risks spillovers to the banking system and the real economy," Barr said according to prepared testimony. "The Federal Reserve will be heightening its focus on liquidity, credit, and interest-rate risks as supervised institutions manage the changing financial conditions."

In the wake of the pandemic, the global recovery is uneven, inflation is far too high, and geopolitical events pose downside risks to the U.S. and other economies around the world, he said, repeating that regulators are taking a holistic look at the Fed’s capital framework. "We are taking a look at the G-SIB surcharge, the enhanced supplementary leverage ratio, stress testing, the countercyclical capital buffer, and other measures." (See: MNI: Fed To Press Ahead With QT Amid Liquidity Concerns)