Federal Reserve Governor Michael Barr cautioned that weakening the central bank's oversight could allow "real dangers" to accumulate in the banking system, potentially sowing the seeds of a future crisis.
In prepared remarks for a speech at American University's Kogod School of Business on Tuesday, Barr emphasized that effective supervision relies on credible rating frameworks, forward-looking regulation, and a robust workforce.
He further warned that reducing examiner coverage, diluting rating systems, and redefining long-standing standards for "unsafe and unsound" banking practices would make it harder for regulators to act before problems escalate.
Barr's comments come amid persistent calls from the banking industry for deregulation. His counterpart, Fed supervision official Michelle Bowman, has advocated refocusing oversight on material financial risks. Since taking office earlier this year, the Fed has moved to ease capital requirements, lower standards for banks to be considered "well-managed," and reduce staffing in bank supervision departments.
As Bowman's predecessor and former Fed Vice Chair for Supervision, Barr has repeatedly opposed these measures. He also cautioned against the pattern of weakening oversight during economic booms, which he said could set the stage for subsequent downturns.
"Strong supervision provides clear benefits not just to individual banks, but to the stability of the entire financial system," Barr stated.
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