The Fed Expects Pression To Reverse Trump-Era Banking Policies | Wednesday, May 18, 2022:



Fed Nominee Michael Barr Has Pressed to Reverse Trump-Era Banking Policies

Andrew Ackerman

WASHINGTON—Former Treasury Department official Michael Barr is expected to pursue tougher oversight of the financial system and reverse some Trump-era policies if he wins confirmation as the Federal Reserve’s top bank regulator.

Mr. Barr, who worked in the Obama administration, is scheduled to face the Senate Banking Committee in a confirmation hearing Thursday, a hurdle to a four-year term as Fed vice chairman for supervision. If confirmed by the Senate, he would become the most influential U.S. financial regulator and have a voice on monetary policy.

He would round out President Biden’s slate of appointees to the central bank. Fed Chairman Jerome Powell and three other central-bank appointments were confirmed in recent weeks.

Randal Quarles, who previously held the Fed supervision post, focused on simplifying financial regulations.

Photo: Zach Gibson/Bloomberg News

Mr. Barr, a 56-year-old dean of public policy at the University of Michigan, has a record that suggests he might seek to restore at least some of the financial rules that were eased by the Fed during the Trump administration.

Randal Quarles, who previously held the Fed supervision post, focused on simplifying financial regulations enacted after the 2008-09 financial crisis, moves that supporters have said clarified or better calibrated the central bank’s rules but that some Democrats said significantly softened the impact of the Wall Street rulebook.

“We need to undo the damage caused by the last four years of policy,” Mr. Barr said in June 2020, referring in part to Trump-era policies that pared back capital and other cash-management requirements for large U.S. lenders.

The Biden administration hopes Mr. Barr will win support from both progressive and moderate Democrats.

President Biden’s first nominee for the top Fed post, Sarah Bloom Raskin, withdrew from consideration in March after Sen. Joe Manchin (D., W.Va.) said he couldn’t support the nomination, citing her views on addressing climate change. His vote was key in the 50-50 Senate with unified Republican opposition to Ms. Raskin.

On Tuesday, Mr. Manchin said he planned to support Mr. Barr, after meeting privately with him last week. It couldn’t be learned whether Mr. Barr would receive any Republican support. Pennsylvania Sen. Pat Toomey, the ranking GOP member on the Senate Banking Committee, said last month that he had concerns about Mr. Barr over his involvement with the Dodd-Frank financial overhaul.

Michael Barr was the Treasury Department’s assistant secretary for financial institutions during the Obama administration.

Photo: Andrew Harrer/Bloomberg News

Mr. Barr last year was a contender to be the comptroller of the currency, another top banking post, before skepticism from progressives stymied that bid. The eventual White House choice for that role, Saule Omarova, withdrew after opposition from moderate Democrats, and the post still doesn’t have a Senate-confirmed appointment.

Some progressives had raised concerns about Mr. Barr’s previous work for the financial-technology firms Ripple Labs Inc. and LendingClub Corp. , arguing that his ties could conflict with his role as a regulator. But the progressive Sen. Elizabeth Warren (D., Mass.) has said she would support Mr. Barr and in a 2014 book described him as a hero for helping to create the Consumer Financial Protection Bureau.

While Mr. Barr’s approach might conflict with that taken by Mr. Quarles, Mr. Powell has said he would generally defer to whoever serves as Mr. Quarles’s successor. “I respect that that’s the person who will set the regulatory agenda going forward,” Mr. Powell said in September.

Friends and former colleagues said that if Mr. Barr does try to change direction at the Fed, they expect he will take a collaborative and pragmatic approach. An academic known for his work on financial inclusion and consumer advocacy, Mr. Barr had stints 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.

He is co-author of a textbook on financial regulation, and 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.

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Analysts said they expect Mr. Barr would likely pursue relatively modest steps to strengthen bank stress tests, rather than wholesale revisions to the annual exercise to test whether large lenders are able to withstand a severe recession.

Similarly, Mr. Barr isn’t expected to spend time revisiting moves to ease compliance with the Volcker rule, a Dodd-Frank requirement that restricts banks from trading unless it is on customers’ behalf.

“Volcker is a political headache that would get in the way of real work,” said Steven Kelly, a research associate at the Yale Program on Financial Stability.

An early test of Mr. Barr’s approach could come from the way he proposes to treat Treasurys and deposits banks hold at the central bank under capital requirements known as the supplementary leverage ratio. The Fed allowed a temporary, pandemic-related reprieve from the capital requirements to expire last year, but promised to propose a broader revamp to the rule’s treatment of ultrasafe assets. It has yet to do so.

Senior Democrats such as Senate Banking Committee Chairman Sherrod Brown (D., Ohio) and House Financial Services Committee Chairwoman Maxine Waters (D., Calif.) have said any extension of the relief would be a mistake, weakening the postcrisis regulatory regime. Republicans and banks generally pressed for an extension.

Write to Andrew Ackerman at

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