(Bloomberg) -- Federal Reserve Vice Chair for Supervision Michael Barr says monetary policy and financial stability are “inextricably linked.”
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Barr’s speech Tuesday followed President Donald Trump’s recent executive order seeking to tighten the reins on independent agencies, including the Fed’s bank supervisory and regulatory work. The order last week wouldn’t directly affect the central bank’s monetary policy, but it called for agencies to submit draft regulations for White House review before publication and consult with the administration on priorities and strategies.
Barr plans to leave the oversight position on Friday while continuing to serve as a member of the Fed’s Board of Governors. In his last days as vice chair, he has stressed the importance of strong regulation and the Fed’s independence.
He made no mention of the executive order in Tuesday’s remarks at the Yale School of Management in New Haven, Connecticut. But he did say in a question-and-answer period the Consumer Financial Protection Bureau, whose funding from the Fed has been suspended by the Trump administration, has done “enormous good” for American households.
“Regulation of financial markets, regulation and supervision of banks, federal deposit insurance, and laws to protect investors, consumers, and businesses were developed over time to promote both financial stability and durable economic growth,” Barr said. “I have spoken previously about how monetary policy and financial stability are inextricably linked and how the tools we use to conduct monetary policy and support financial stability work together.”
Barr provided more details on the banking stress of 2023. He said more than 1,800 institutions borrowed from the Fed’s Bank Term Funding Program, a special facility opened to provide liquidity to banks facing deposit flight or liquidity stress. He said most of the borrowing was among institutions with less than $10 billion in assets.
“These smaller institutions took out 50% of loans by value and nearly 95% of loans by volume,” he said. “Fed staff analysis showed the usage was more likely among institutions that had experienced deposit outflows, but usage was also widespread at firms that did not experience outflows.”