MNI BRIEF: Fed's Oversight Cuts Present Risks To America-Barr

Federal Reserve Governor Michael Barr on Tuesday warned that policymakers' loosening of banking industry regulations and supervision, coupled with a broader deregulatory momentum, create a dangerous environment for both institutions and the economy at large.

"We are now, I believe, at a moment of inflection in the regulatory and supervisory approaches that help keep banks healthy. There are growing pressures to weaken supervision—to scale back examiner coverage, to dilute ratings systems, and to redefine 'unsafe and unsound'—in ways that will make it harder for examiners to act before it is too late to prevent a build-up of excessive risk," Barr said in prepared remarks. 

"These pressures present real dangers to the American people," the former Federal Reserve Vice Chair for Supervision said. 

His remarks come as the Fed has told its examiners and supervisory staff across the country to significantly curtail how closely to scrutinize lenders. The Fed has been providing regulatory relief to banks and has announced a 30% cut in headcount of its supervision and regulation division by the end of 2026. (See: MNI INTERVIEW: Private Credit Poses Systemic Risks - Ghamami) 

"Periods of weakened supervision have often preceded episodes of financial excess and instability," Barr said. The decline in resources for supervision as well as a weakened focus on governance and controls undermine regulators’ ability to adequately protect against excessive risk taking, he said.