In one of his final speeches as vice chairman for supervision, Federal Reserve Governor Michael Barr pushed back against criticisms of a variety of regulatory initiatives during his tenure, from heightened capital requirements to climate risk. He also dismissed arguments that a lack of focus on fundamentals by federal supervisors contributed to the 2023 failure of Silicon Valley Bank.
Barr will step down as vice chairman for supervision at the end of the month, although he plans to finish his term as governor, which ends in 2032. Speaking at Georgetown University in Washington, D.C., Barr urged regulators to finish the job of implementing the reforms proposed in the wake of the 2008 financial crisis “and not to dismantle the hard-fought resilience that banks have built up in the process.” The proposed Basel III endgame capital requirements for large banks are among the reforms.
“Implementing international standards enables U.S. firms to compete on a level playing field across the globe and makes the system safer.” Barr said. “When we don’t follow through on our commitments, for whatever reason, concerns about a level playing field rise in other jurisdictions, in an international ‘race to the bottom’ on standards. This harms us all and makes U.S. banks less competitive.”
Barr expressed caution about proposed changes to Fed stress tests, reiterated concerns about the risks associated with cryptocurrency and the nonbank financial sectors, and defended the focus on climate change as a financial risk, pointing to the L.A. wildfires as “a wake-up call that we need to focus on how insurance markets will need to adjust to more frequent and severe weather events.” He also pushed back on allegations that lack of supervisory focus on banking fundamentals played a role in the SVB failure.
“While some have claimed that the examiners at SVB did not focus on the right issues, it’s important to highlight that the Office of Inspector General concluded that the Fed allocated an insufficient number of examiner resources to SVB while in the [regional banking organization] portfolio, and that the examiners assigned to SVB as it was growing did not have sufficient expertise in supervising large, complex institutions. … We’ve made important changes since then, but we need to be sure we get the staff resources in place, and provide support to examiners on the front line, so that they can act with the speed, force and agility warranted by the facts,” he said.
