Fed’s Top Banking Regulator Calls for Safer, Fairer Financial System


WASHINGTON—The Federal Reserve’s new regulatory chief said Wednesday that the central bank should be more attuned to making the financial system safer and fairer to consumers, while signaling he would conduct a more-rigorous review of bank mergers.

The remarks from Fed Vice Chairman

Michael Barr,

his first in public since taking office July 19, suggest a more aggressive approach to overseeing Wall Street than his Republican predecessor

Randal Quarles.

Mr. Barr said he aims to evaluate how the Fed reviews proposed bank tie-ups and to assess “where we can do better,” speaking at an event hosted by the Brookings Institution, a Washington think tank.

The remarks are consistent with those from others made by the Biden administration and its top regulators, who are seeking to address concerns that the steady growth of the nation’s largest regional banks has introduced new risks to the financial system. While these firms might lack the vast trading floors and international operations of megabanks like JPMorgan Chase & Co. and Bank of America Corp., the biggest regionals’ balance sheets are now approaching the size of some of so-called systemically important banks.

The push to revamp the way regulators assess the mergers of large banks is in its early stages but could make bank tie-ups more difficult.

“These risks may be difficult to assess, but this consideration is critical to assess how we are performing merger analysis and where we can do better,” Mr. Barr said Wednesday.

At the event, Mr. Barr also addressed monetary policy. He said inflation was too high and that the Fed was committed to bringing it down. Acknowledging that the Fed’s rate increases risk a further slowdown to the economy—and even some pain—he said it is far worse to let “inflation continue to be too high.”

He didn’t specify how high the Fed’s benchmark interest rate should rise.

Wednesday’s remarks on regulation are being closely watched by banks and officials to get a sense of Mr. Barr’s priorities.

Though he was confirmed easily in July, the Senate process yielded few clues to Mr. Barr’s broader policy agenda. Mr. Barr said he would have more to say about certain bank-capital requirements in the fall.

Mr. Barr’s remarks didn’t go into detail on whether he plans to alter bank capital and liquidity levels through changes to the central bank’s rulebook or its annual “stress tests,” which aim to determine how large lenders would react to drastic market and economic shock. Mr. Barr has previously said he wants to get a broad view of requirements before pushing for adjustments to rules piece by piece.

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Generally speaking, Mr. Barr said on Wednesday, bank-capital requirements must continuously evolve to incorporate “new risks that may emerge.”

Mr. Barr’s supervision role is the government’s most influential bank overseer, responsible for developing a vision for the regulation of big banks and other financial firms. That includes developing policy recommendations for the Fed board and for overseeing its regulatory staff, which supervises some of the largest U.S. financial firms, including JPMorgan, Bank of America and

Citigroup Inc.

Mr. Quarles, who previously held the Fed supervision post, focused on simplifying financial regulations enacted after the 2008-09 financial crisis. Supporters say those moves clarified or better calibrated the central bank’s rules. Some Democrats say they significantly softened the impact of the Wall Street rulebook. Mr. Quarles left the Fed in December.

Mr. Barr was the last of President Biden’s slate of five appointees to the central bank. Fed Chairman

Jerome Powell

and three other appointments were confirmed in recent months.

Friends and former colleagues say Mr. Barr’s focus would likely be animated by his academic work, which has focused on financial inclusion and consumer advocacy. He is co-author of a textbook on financial regulation. He wrote a 2012 book, “No Slack,” which argues that lower-income individuals often lack access to the type of financial services that middle-income families take for granted.

Mr. Barr was formerly a dean of public policy at the University of Michigan. He also served in the Treasury Department during the Clinton and Obama administrations, including as a top lieutenant to then-Treasury Secretary

Timothy Geithner.

Mr. Barr played a role as an architect of the 2010 Dodd-Frank financial overhaul, including the law’s creation of the Consumer Financial Protection Bureau.

Read More on Financial Regulation

Write to Andrew Ackerman at andrew.ackerman@wsj.com

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