Michael S. Barr, the new head of supervision for the US Federal Reserve, expected to take a role in regulation of digital assets and emphasize banks’ obligations in poorer communities
The new head of supervision for the US Federal Reserve, Michael S. Barr, is seen by friends and former colleagues as an open-minded policymaker who is non-partisan and willing to listen to opposing points of view to find effective solutions. In terms of major policy goals, several said Barr would likely be a champion for greater financial inclusion for poorer and minority people.
Sworn in recently as the Fed’s chair for banking supervision, Barr takes the reins of the one of the powerful posts in US financial regulation, which some label as the “cop of Wall Street.” Having initially been on the Biden’s administration’s short-list to lead the Office of the Comptroller of the Currency (OCC), Barr’s appointment to the Fed vice-chair post is seen by some as a more significant assignment.
“He ended up getting a better job,” said Robert Litan, a non-resident fellow at the Brookings Institution, who worked with Barr during the Clinton administration when Barr was a deputy assistant secretary of the US Treasury for domestic affairs and Litan was an associate director of the Office of Management and Budget.
Litan said Barr brings the right set of skills, temperament, and experience to a job that requires juggling competing views and interests in the oversight of US banks. “He’s not somebody who’s going to go off by himself and do things without consultation, because he’s had to work in environments almost his entire professional life where he’s had to build consensus and work with people in a cooperative way,” Litan said.
Pragmatic — not a “rubber stamp” for progressive Democrats
The Biden administration’s first pick for the Fed vice-chair role was Sarah Bloom Raskin, a former deputy Treasury secretary in the Obama administration and a Fed governor from 2010-‘14. By all measures, Bloom Raskin seemed tailor-made for the role, but her Senate confirmation process ran into trouble among Republicans and a swing-vote Democrat over her views that the Fed should play a more active role on climate change.
In his confirmation hearings before the Senate Banking Committee, Barr steered clear of suggesting a specific role for the Fed on climate change, and offered a more restrained philosophy, saying the central bank’s powers related to the climate issue were “important but quite limited” and mainly focused on assessing the risks banks might face from climate change. “I think the Federal Reserve… should not be in the business of telling financial institutions to lend to a particular sector or not to lend to a particular sector,” Barr told the committee.
Former colleagues at the University of Michigan, where Barr was a professor, said that while Barr is a liberal Democrat, he would not likely be ideologically bound to certain policies of the party’s left-wing progressives.
“He’s a reasonable person who I think will be open-minded,” said Adam Pritchard of the University of Michigan’s law school, who specializes in securities regulation. “There are going to be regulatory initiatives that you would see in a Democratic administration that you wouldn’t have seen in a Republican administration, but I think he will be open-minded, and he will at least listen to them.”
Pritchard noted that a sizeable number of Senate Republicans voted for Barr’s confirmation. “He’s not going to be a rubber stamp for what [Democrats] want by any stretch of the imagination,” said Pritchard, who described his own views as more conservative. “But I think he has an understanding of practical problems, and the goal should not be to hobble the banking sector.”
Focus on banking for poorer communities
While Barr will face a long list of supervisory issues, he is likely to have a keen interest is on regulations that impact low- and moderate-income people and communities. Specifically, he is expected to weigh in on the Community Reinvestment Act, a regulation drawn up in the 1970s that has been under review by the Fed, the OCC, and the Federal Deposit Insurance Corporation. The three agencies aim to bring the rules, which evaluate how banks are doing in lending to poorer communities, up to speed given technological changes in the banking industry.
“One thing that he has been working on throughout his academic career is promoting access to financial services,” said Pritchard. “The great financial stressor for American working people is that they don’t have six months of expenses in cash, in a savings account. It’s very hard for people to accomplish that, and it is one of the things that makes an enormous difference in your financial stability throughout your life. If there’s going to be an aggressive policy initiative from him, it seems to me that this might be it.”
Barr has devoted much of his past academic research on such issues and will be influential in regulation that expands banking services to such communities.
“He obviously has special concern for whether banks are making adequate or maximum efforts to lend to low-income people, people of color, and so forth,” added Litan of Brookings. “That’s been a theme of his research and his interest.”
Coordination with other financial regulators on digital assets
Another aspect of Barr’s experience in government service that could be beneficial is his relationships with other regulators, such as Gary Gensler, chair of the Securities and Exchange Commission (SEC). This might be particularly helpful on the vexing issue of how to regulate cryptocurrencies and digital assets.
“Michael knows Gary Gensler well,” said Litan. “There have been a lot of very legitimate issues, consumer protection issues raised about crypto, but that is not going to be his bailiwick, which is not consumer protection.”
Rather, Barr’s bailiwick is going to be financial supervision, Litan noted. “It’s going to be, ‘Does crypto present a systemic risk?’ — but I wouldn’t be surprised if he consults with the [Commodity Futures Trading Commission] CFTC and the SEC about these issues.”