The Fed's Michael Barr on Real-Time Payments and the Basel Endgame

Basel Proposal

The Basel endgame proposal is a significant regulatory change aimed at enhancing the resilience of the banking system. Michael Barr explains that while the operational risk charge is a point of contention, the Federal Reserve is open to evidence-based comments to ensure the rule is accurate 1. He also clarifies that the new regulations primarily target the largest banks, leaving smaller community banks unaffected 2.

We want to make sure that they're commensurate with the increased resilience of the banking system that results.

--- Michael Barr

Barr emphasizes that the goal is to balance the costs of compliance with the benefits of a more resilient banking system.

   

System Resilience

The new regulations aim to make the banking system more resilient, reducing the risk of another financial crisis. Barr highlights that higher capital requirements will slightly increase the cost of credit but significantly enhance system stability 3. He also underscores the importance of a stable and resilient treasury market, which is crucial for the global financial system 4.

Treasuries are really at the core of our financial system.

--- Michael Barr

Measures like the standing repo facility are steps toward ensuring market stability.

   

Supervisory Shift

Recent banking failures have highlighted the need for a shift in supervisory culture. Barr notes that supervisors identified risks but didn't act decisively, emphasizing the need for a more proactive approach 5. He also discusses the growing risks in the non-bank sector, stressing the importance of a strong banking system to mitigate these risks 6.

Supervisors know that they should act with speed and with force and with agility when risks warrant that kind of action.

--- Michael Barr

The focus is on empowering examiners to take timely and effective action.