Banking

Fed nominee Barr ‘well positioned’ for confirmation after Senate hearing

WASHINGTON — Michael Barr, the Biden administration’s second pick to become the Federal Reserve’s chief banking regulator, faced little resistance from Senate Banking Republicans at a confirmation hearing Thursday.

Barr, an administrator at the University of Michigan and a former Treasury Department official, managed to avoid the fierce scrutiny that ultimately tanked the nomination of Sarah Bloom Raskin, the White House’s initial pick for the Fed’s vice chair for supervision. 

Michael Barr, an administrator at the University of Michigan and a former Treasury official, said the Federal Reserve had a limited scope for addressing climate change through regulatory policy.

Bloomberg

During the two-hour hearing, committee members sought to pin down Barr’s views on the role of climate change in setting prudential regulation and the independence of the Fed. Republicans also used the hearing to press Barr about perceived shortcomings of the Consumer Financial Protection Bureau, which he played a key role in designing after the global financial crisis.

Overall, most of the questions focused on how Barr would approach the job of vice chair for supervision, which sets the Fed’s regulatory agenda. They asked for his thoughts on capital requirements, the supplementary leverage ratio and the handling of digital assets. 

The line of questioning suggested that Barr would be confirmed, according to Isaac Boltansky, a policy analyst at the financial services firm BTIG.

“It would have taken a uniquely terrible performance to derail Barr’s nomination, and his performance was solid enough to suggest that he will clear the committee and should be confirmed in the next couple months,” Boltansky said.

Barr was one of three White House nominees to testify Thursday; the others were Securities and Exchange Commission nominees Jaime Lizárraga and Mark Uyeda.

Last month, the Biden administration tapped Barr for the role of vice chair for supervision after Biden withdrew Raskin’s nomination at her request. Raskin, who had previously been confirmed as a Fed governor and undersecretary of the Treasury, was thought to be a certainty for the position heading into her nominating hearing. 

During her testimony, Raskin declined to answer questions about her involvement in efforts by Reserve Trust, a financial technology firm for which she served as a board member, to obtain a master account at the Federal Reserve Bank of Kansas City. Seizing on that as well as Raskin’s previous advocacy for the Fed to block fossil-fuel companies from emergency credit facilities during the height of the pandemic, Senate Republicans mounted a successful effort to block her nomination.

Sen. Pat Toomey of Pennsylvania, the ranking Republican on the banking committee, noted Barr’s past statements about the threat climate change poses to the financial system as a cause for concern, and quizzed him on how he would approach the matter.

Barr said the Fed’s ability to address climate change was “important, but quite limited, quite narrow,” explaining that it was within the central bank’s authority to study the risks involved and work with banks to manage those risks. He added that he did not agree with Raskin’s stance on limiting access to emergency credit facilities. “The Federal Reserve is not able to allocate credit,” Barr said. “It should not be in the business of telling financial institutions to lend to a particular sector or not to lend to a particular sector.”

Last year, Barr was considered a top contender for comptroller of the currency, but concerns among progressive lawmakers and tech watchdog groups about Barr’s involvement with financial technology firms, as both an investor and advisor, ultimately took him out of the running. Sen. Elizabeth Warren, D-Mass., said Barr would have to divest himself from “at least half a dozen” cryptocurrency-related companies if confirmed. At Warren’s request, Barr pledged not to work for any fintechs or other financial institutions for at least four years after leaving office.

Several senators pressed Barr for his views on the supplementary leverage ratio, a regulatory framework that requires banks to hold a certain amount of Tier 1 capital against their exposures to leveraged assets. Quantitative easing in recent years has caused the amount of reserves and Treasury securities in the banking system, both of which count against banks’ ratios, to skyrocket. Some banks say this has become a binding restraint.

Barr said he understands this is an issue and said it would be a priority for him as vice chair for supervision, but declined to give a specific timeline for addressing the matter. 

“What I’d like to do is to come into this position confirmed and wrap my arms around the whole capital liquidity picture,” Barr said. “That includes the SLR and the Basel III endgame and stress testing and the like, and make sure I understand the full package of potential issues.”

During his testimony, Barr affirmed his support for a tailored regulatory system that puts a greater burden on larger, more complex institutions that pose a greater potential threat to the financial system. As vice chair for supervision, he said he would pay close attention to emerging threats to financial stability, including cyberattacks and new technologies such as stablecoins. 

“It’s quite important that Congress and regulatory agencies wrap their arms around those financial stability risks and regulate so that we don’t have situations where people are holding an asset that they believe is a cash instrument, but it actually is not,” he said.

Barr also said he views the Fed’s independence as sacrosanct. 

“The Federal Reserve’s independence is longstanding and I think quite critical to its effectiveness as a nonpartisan institution, an institution that can make judgments purely based on the evidence, the facts in front of it,” he said. “That’s especially important with respect to its monetary policy duties. The market needs to have confidence that the Federal Reserve’s decisions are made based solely on the evidence — and the American public needs to have confidence that those decisions are based solely on the evidence in front of it — so its independence dramatically enhances its effectiveness.”

Kathryn Judge, a Columbia Law School professor focused on financial regulation, said Barr’s chances of confirmation were strong coming into the hearing and that he did nothing to damage that standing Thursday. She attributes the light resistance from banking committee members to their understanding of how urgently the vice chair for supervision position needs to be filled.

“With inflation continuing to run higher than it has in 40 years, the shocks to the real economy caused by the invasion of Ukraine and the pandemic, market volatility, and other recent developments, I think many appreciate the need to ensure the role is filled in a timely way,” Judge said. “With the current environment, no confirmation can be assumed, but he looks well positioned.”



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