(Bloomberg) — The Federal Reserve’s top bank cop, Michael Barr, implored regulators to stay vigilant about risks to the financial system as he gets ready to step down from his role as vice chair for supervision while remaining on the Board of Governors.
Barr stressed the need for focus on issues like climate risk and the nonbank sector while underscoring the importance of maintaining the credibility of stress tests and supervision. He also emphasized that capital requirements should be aligned with risks.
“We need to be humble about our ability to predict shocks to the financial system,” Barr said in remarks at Georgetown University Law Center in Washington on Thursday. “That is why it is so important to have strong regulation and supervision as shock absorbers to protect households and businesses from risks emanating from the financial system.”
His departure at the end of the month further clouds the future of a plan from US regulators to force the country’s largest lenders to hold significantly more capital to buffer against losses and a financial crisis. Industry had argued the original proposal unveiled in 2023 would put US banks at a disadvantage against international rivals.
It also comes after the Fed recently announced plans to overhaul its stress tests of big lenders. Banking and business groups subsequently sued the Fed over the annual tests, saying they want more input into how the rules are adopted.
Barr underscored the importance of the central bank’s independence from political interference.
“I feel strongly — as Chair Powell has said publicly many times — that the independence of the Federal Reserve is critical to our ability to meet our statutory mandates and serve the American public. Put simply, our mission is too important to let such a dispute distract from doing our job for the American people,” he said. “Put simply, our mission is too important to let such a dispute distract from doing our job for the American people.”
His comments come after President Donald Trump issued an executive order Tuesday requiring independent agencies such as the Fed to submit draft regulations for White House review and consult with the Trump administration. The order applied to the central bank’s work on supervision but exempted monetary policy.
Barr said he believes there is a benefit from having different perspectives at regulators.
“Diversity of thought is really important in not creating blind spots in the system,” he said.
Barr is set to depart his role as the Fed’s top banking cop on Feb. 28. He will also step down from the Fed’s Committee on Supervision and Regulation but still plans to remain on the Board of Governors.
(Updates with details throughout.)
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