WASHINGTON (Reuters) – U.S. President Joe Biden on Friday mentioned he would nominate former Treasury official Michael Barr to be the Federal Reserve’s Wall Road cop, changing Sarah Bloom Raskin, who withdrew in March after failing to win assist from average Democrats.
Presently a professor on the College of Michigan Regulation Faculty, Barr was a central determine on the Treasury underneath President Barack Obama when Congress handed sweeping reforms following the 2007-09 monetary disaster.
Right here is the regulatory agenda that Barr must sort out if he wins Senate approval:
DE-REGULATION REDUX?
Randal Quarles, the earlier Fed Vice Chair for Supervision, led a overview of post-crisis rules, arguing they have been too blunt and onerous. Democrats accused Quarles of saving Wall Road billions of {dollars} whereas growing systemic dangers, they usually need the Fed to revisit a few of these adjustments.
Among the many most contentious have been revisions to the “Volcker Rule” curbing speculative financial institution investments; scrapping a requirement for giant banks to carry capital towards sure swap trades; and stripping the Fed of its energy to fail banks on their annual “stress checks” primarily based on subjective considerations.
Barr must resolve rigorously which of those he believes he can reverse, given such adjustments are prone to be contentious and time-consuming.
CLIMATE CHANGE RISKS
Local weather change, a high coverage precedence for Democrats, is anticipated to quickly rise on the Fed agenda.
To this point, the Fed has requested lenders to clarify how they’re mitigating local weather change-related dangers to their stability sheets, with the business anticipating to progress to a proper local weather change state of affairs evaluation in 2023, Reuters has reported.
These tasks are anticipated to speed up. The massive query might be whether or not the Fed pushes for restrictions or stiffer capital necessities on banks with important exposures to polluting industries or different climate-specific dangers.
Fed officers might find yourself treading extra rigorously than progressives had hoped, as Raskin’s nomination was finally sunk by considerations she would push too aggressively on local weather danger.
BANK M&A
The Fed’s place on financial institution M&A is anticipated to develop into harder underneath a brand new supervision chief. Progressive Democrats typically oppose financial institution tie-ups, arguing that they scale back competitors and damage customers, and plenty of offers have been delayed after Quarles stepped down from the supervision function in October.
Some pending offers have been accredited following Fed Chair Jerome Powell’s renomination, however the business remains to be ready for the Fed and the Justice Division to resolve on a possible new coverage for financial institution offers. If confirmed, Barr is anticipated to guide the committee that scrutinizes potential tie-ups.
FINTECH FRAMEWORK
The Fed can be anticipated to sort out a regulatory blueprint for “fintech” corporations which might be rapidly chipping away on the conventional monetary sector.
It’s exploring how banks intersect with fintechs, significantly with smaller lenders which will outsource extra providers and infrastructure. Fintechs are additionally lobbying the Fed for entry to its funds system.
Whereas different banking regulators have labored for years to carry fintechs underneath their regulatory umbrella, the Fed has resisted, fearing doing so may create systemic dangers. However because the sector continues to balloon, the Fed is anticipated to behave.
SUPPLEMENTARY LEVERAGE RATIO
One other situation on the desk is the supplementary leverage ratio, a rule created after the decade-ago disaster requiring banks to carry capital towards property no matter their danger.
The Fed needed to briefly ease that rule within the midst of the pandemic as a glut of financial institution deposits and Treasury bonds drove up financial institution capital necessities on what are seen as protected property.
Regardless of intense financial institution lobbying, the Fed let that aid expire however promised to overview the general rule. The Fed has but to publish a proposal.
COMMUNITY REINVESTMENT ACT
The central financial institution may also play a key function in a long-awaited overhaul of the Neighborhood Reinvestment Act (CRA) guidelines, which promote lending in lower-income communities.
The Fed, which shares accountability for writing the principles with different financial institution regulators, hopes the CRA could be up to date to mirror the expansion in on-line banking, whereas nonetheless making certain lenders make significant contributions to the poorer areas they serve.
Barr would doubtless must be in place earlier than the Fed may log off on the adjustments.
Modifying by Michelle Value and Hugh Lawson
