FRB Governor Decries Bank Deregulation and Weakened Supervision

Federal Reserve Governor Michael Barr decried recent efforts that weaken bank regulation and supervision.

In remarks at American University, Mr. Barr described the wave of bank deregulation underway as the most significant since the 2008 financial crisis. He said that over the past year and a half, the Fed and other agencies lowered large-bank capital requirements by reducing the stringency of stress tests, eroded the leverage ratio, advanced a Basel III proposal that falls short of the international standard, and cut the surcharge for the largest banks. In aggregate, he said, the changes cut required capital for the largest banks by 6 percent, or about $60 billion, even though the eight global systemically important banks hold around 60 percent of banking-sector assets. Mr. Barr argued that reduced capital requirements, weaker supervision, and likely cuts to liquidity rules are leaving the system "underinsured."

On supervision, Mr. Barr said the Fed weakened the rating system for the 36 largest firms in a way amounting to "grade inflation," and  curtailed the number of "matters requiring attention," which fell to roughly half their 2024 level for the largest banks. The share of large banks rated well managed had doubled, he said, and a reduction in liquidity requirements appeared likely. He added that the CFPB had scaled back consumer protections.

Mr. Barr rejected the argument that banks should be deregulated to compete with private credit and other nonbanks, saying the answer was to regulate unsafe nonbank practices more, not banks less. He noted that bank credit commitments to nonbanks topped $2.6 trillion in the second half of 2025.