Federal Reserve Governor Michael Barr has criticized regulatory agencies for relaxing U.S. banking standards over the past year, stating that the proposed new rules "significantly weaken the strength of bank supervision and oversight."
In a written statement released on Saturday, Barr expressed his view: "I believe the recent adjustments made by the Federal Reserve and other regulators will undermine the foundation of sound bank operations and heighten risks to financial system stability. The hidden dangers of regulatory easing are difficult to detect now, but they will accumulate year by year, potentially causing severe impacts on the real economy."
Regulatory officials from the Trump administration implemented multiple reforms to ease oversight of Wall Street banks: lowering capital buffer requirements for large banks to hedge against potential losses, narrowing the scope of regulation, and creating pathways for traditional banks to enhance their market competitiveness against private credit giants.
This regulatory relaxation has brought successive benefits to the banking industry, with the implementation led by Fed Vice Chair for Supervision Michael Bowman, who assumed the role a year ago. Previously, Barr stepped down from the vice chair for supervision position to avoid a potential conflict with the Trump administration over the role, after which Trump nominated Bowman as the Fed's top banking regulator.
Barr warned that lowering capital and liquidity regulatory thresholds and weakening the intensity of regulatory scrutiny will increase the risk of a banking crisis.
He pointed out: "The tightness of bank regulation requires careful balancing. Banks need reasonable room to grow, relying on credit extension to support innovation and economic development across industries. However, past experience shows that without adequate risk control constraints, banks, in pursuit of high profits through aggressive expansion, are prone to excessive risk-taking and accumulation of vulnerabilities."
Barr added that once a bank falls into operational crisis, bankruptcy turmoil can affect real businesses and ordinary residents, thereby dragging down the overall economy. He urged financial regulators to take multiple measures to mitigate industry weaknesses.
"As long as capital is solid and funding sources are stable, an individual bank or the entire banking system can withstand various shocks, such as sudden losses, and maintain normal lending operations," Barr stated.
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