Barr: Fed seeking to empower supervisors following SVB failure

The Federal Reserve is working to let its supervisors know that they should act “with force and agility” when they identify potential problems at banks, Fed Vice Chairman for Supervision Michael Barr said today. The Fed released an internal report in April on the Silicon Valley Bank failure that concluded that its supervisors did not elevate concerns about the institution as it grew in size and complexity. During a Q&A at The Clearing House annual conference in New York City, Barr was asked what the Fed doing to change its culture to avoid the mistakes of SVB in the future. He said that in its training and guidance, the Fed is seeking to “empower” supervisors, so they feel comfortable raising concerns about the institutions they oversee.

“One of the things that we’re doing is making sure that examiners feel empowered to act on the basis of information they have in front of them in a timely way, and make sure they have the tools to place if a firm is getting itself in trouble,” Barr said. “We want to make sure we have a system that escalates appropriately so if there’s significant risks, you don’t wait years before action is taken.”

Barr didn’t provide details on what changes were being made, but he added that the Fed isn’t interested in managing banks. “Of course at the end of the day, the bank management and the board of directors at the bank are responsible for running the institution—that’s their job to do,” he said. “And in this case with SVB and some other banks, the banks sorely mismanaged interest rate risk and liquidity risk.”

Barr says FedNow adoption will take time

It takes a long time for any payments innovation to be widely adopted in the economy, and the Federal Reserve’s recently launched FedNow instant payments services is no exception, Vice Chairman Barr said during the Q&A. Barr was asked about the potential competition between FedNow and TCH, and he said there is room in the economy for both a public payment rails system and a private one. “They really are complimentary,” he said, adding that in coming years, “you expect that banks would have access to both kinds of rails.”

In the meantime, Barr expects FedNow adoption to take a considerable amount of time, although when pressed, he didn’t provide any benchmarks for what a successful rollout would look like. “It takes a long time for people to get used to the idea to develop it,” he said. “But right now what we’ve done is built the rails, and those rails can be used by the banking sector to provide new services to their customers, households and businesses.”