Barr Worries Fed Supervision Retreat May Allow Risks to Build
Federal Reserve Governor Michael Barr warns that weakening the agency’s supervision may lead to “real dangers” that accumulate in the banking system, which over time might sow the seeds of a crisis.
Supervision relies on a credible ratings framework, forward looking supervision and strong staff, Barr said Tuesday in prepared remarks at the Kogod School of Business at American University in Washington.
He added that moves to “scale back examiner coverage, dilute ratings systems, and to redefine a long-held standard of ‘unsafe and unsound’” practices by banks will make it harder for examiners to act before it is too late.
Michelle Bowman, the Fed’s top bank cop, has called to refocus oversight on material financial risks as industry has pushed for a lighter regulatory touch. Since she took over the role earlier this year, the regulator has moved to ease bank capital rules, make it easier for banks to get a “well managed” tag and reduced supervision staff.
Barr, who preceded Bowman as the Fed’s vice chair for supervision, repeatedly has pushed back against those efforts. He has also raised alarms about what he sees as a pattern of regulatory weakening during a boom and how it lays the foundation for a subsequent bust.
“Supervision delivers clear benefits not only for individual banks but also for the stability of the financial system as a whole,” Barr said.
Source : Bloomberg.com
