The Federal Reserve’s new top bank watchdog is pledging to take a tough approach to evaluating mergers between lenders as tie-ups between regional firms grow politically contentious in Washington.
(Bloomberg) — The Federal Reserve’s new top bank watchdog is pledging to take a tough approach to evaluating mergers between lenders as tie-ups between regional firms grow politically contentious in Washington.
Michael Barr, the Fed’s vice chair for supervision, said in his first major speech since taking office in July that reviewing the central bank’s process for approving combinations was one of his priorities. While rules already prevent the biggest Wall Street giants from merging, Democrats have been arguing that more scrutiny is needed for tie-ups involving smaller firms.
“Mergers are a feature of vibrant industries, but the advantages that firms seek to gain through mergers must be weighed against the risks that mergers can pose to competition, consumers and financial stability,” Barr said in a speech Wednesday at The Brookings Institution in Washington. He added that the regulator was weighing new guidance on the issue.
Barr, an architect of the Dodd-Frank Act of 2010, is expected to increase scrutiny of banks compared to the oversight they faced during the Trump administration. His nomination won bipartisan support earlier this year after he pledged not to let social issues drive his stance in overseeing Wall Street.
In his wide-ranging remarks, Barr also committed to putting in place new capital requirements for banks that align with the global Basel III standards. He said the Fed would work with other US regulators and seek public comment in standing up the new “Basel III endgame” standards.
“Nothing is more basic to the safety and soundness of banks and the stability of the financial system than capital,” he said.
Digital Assets
Barr also signaled that the Fed would be focused on the fast-growing digital-asset industry.
He said he hoped Congress would work “expeditiously” on legislation to bolster regulators’ ability to oversee stablecoins. Still, in response to a question during the event, Barr said that multiple regulators already have the authority to oversee the assets.
Meanwhile, banks’ involvement in digital currencies is also set to face more Fed scrutiny, he indicated.
“I plan to make sure that the crypto activity of banks that we supervise is subject to the necessary safeguards that protect the safety of the banking system as well as bank customers,” Barr said. “Banks engaged in crypto-related activities need to have appropriate measures in place to manage novel risks associated with those activities and to ensure compliance with all relevant laws, including those related to money laundering.”
Inflation, Climate
Barr also touched on monetary policy. He said inflation is “far too high” and US central bankers are committed to restoring price stability. The Fed official declined to say how high the benchmark rate would need to go to tame price pressures.
On the environment, he said the Fed’s role in dealing with climate change is “narrow” and would be limited to looking at risks posed to the financial sector. He reiterated that the central bank wouldn’t tell lenders which industries should be offered financing.
(Updates with comments on inflation and climate risk in last two paragraphs.)
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