Federal Reserve Vice Chairman Bostic's final warning! Relaxing bank regulations may increase the fragility of the financial system.

Michael Barr, the vice chairman responsible for regulatory affairs at the Federal Reserve, warned on Thursday that relaxing bank regulatory rules and supervision could make financial institutions more vulnerable to unexpected shocks. He emphasized the need to maintain a strong regulatory framework to prevent the spread of financial risks. Barr is set to step down from his role as regulatory vice chairman at the end of February this year, but he will continue to serve as a member of the Federal Reserve Board. In what is expected to be his last public speech as the head of Fed regulation, Barr stressed the importance of banks having sufficient capital and strict regulatory requirements to deal with sudden risks. He noted, "We cannot fully anticipate how a specific vulnerability interacts with other risk factors to exacerbate and propagate risk in times of shock, nor can we accurately predict when the shock will arrive in order to preempt it." Barr specifically urged the Federal Reserve and other banking regulatory agencies to complete the implementation of the "Basel III Endgame" reforms. He has been pushing for this reform during his tenure, which would fundamentally change the way banks measure risk and significantly increase capital requirements for large banks. However, the full implementation of this reform plan has not yet been completed due to strong opposition from the financial industry. Barr warned that failing to fully implement these global regulatory agreements could put U.S. banks at a disadvantage and may lead to a "race to the bottom" among countries to lower regulatory standards, weakening the stability of the entire global banking system. In addition to reforms in capital requirements, Barr also issued a warning against weakening another key regulatory tool of the Federal Reserve - the annual stress tests for large banks. The Fed announced at the end of last year its plans to enhance the transparency of stress tests in response to recent court restrictions on government regulatory agency powers. The banking industry has long complained that stress test standards are opaque and subjective, while Barr emphasized that regulatory agencies should not lower capital requirements while improving test transparency. Furthermore, he warned that excessive public disclosure and refinement of stress tests could reduce their flexibility and make them less effective in responding to dynamic risks. While Barr will continue to serve as a member of the Federal Reserve, it remains unknown whether his warnings will be heeded. The Trump administration has made it clear that reducing regulatory burdens is part of its economic growth strategy, so the future direction of financial regulation remains uncertain. Currently, the Federal Reserve has not announced a successor for Barr.