Federal Reserve Vice Chairman for Supervision, Powell: Monetary policy and financial stability are inseparable.

Michael Barr, the vice chairman responsible for supervision at the Federal Reserve, stated in a speech on Tuesday that monetary policy and financial stability are "inextricably linked." Barr will step down from his role as vice chairman for supervision this Friday, while continuing to serve as a governor at the Federal Reserve. In his final days as vice chairman for supervision, he emphasized the importance of strong supervision and the independence of the Federal Reserve. Before Barr's speech on Tuesday, President Trump recently issued an executive order seeking to tighten control over independent agencies, including the Fed's banking supervision and regulatory work. Although this executive order will not directly impact the Fed's monetary policy, it requires agencies to submit regulations to the White House for review before publication and to negotiate with the government on priorities and strategies. Barr did not mention this executive order in his speech on Tuesday, but he did acknowledge during the question and answer session that the Consumer Financial Protection Bureau (CFPB) has brought "enormous benefits" to American households. He stated, "Regulating financial markets, supervising and regulating banks, federal deposit insurance, and enacting laws to protect investors, consumers, and businesses are all aimed at promoting financial stability and sustained economic growth." "In my previous comments on how monetary policy and financial stability are inseparably linked and how the tools we use to implement monetary policy and support financial stability work together." It is reported that the CFPB, mentioned by Barr, was established in 2011 by the US government after the 2008 financial crisis, with the main function of protecting the public from unfair, fraudulent, or predatory financial practices. After taking office, Trump took a series of actions to weaken the CFPB, ordering the bureau to stop almost all work on February 10, including suspending the entire operation, firing probationary employees, and no longer extracting additional funds from the Fed, effectively shutting down the agency. However, as of February 25, the Trump administration's lawyers denied in a court filing that the White House intended to dissolve the Consumer Financial Protection Bureau, contradicting Trump's earlier statements this month. The Justice Department lawyers rejected a request from the union representing CFPB workers on February 24 seeking a court order to stop actions aimed at dismantling the agency. Nevertheless, the Trump administration acknowledged that a "streamlined" agency would require less office space, and the agency has decided to cancel its headquarters lease. The Justice Department lawyers stated that the premise of operating a more streamlined and efficient agency is that the Consumer Financial Protection Bureau will continue to exist. It is worth noting that Federal Reserve Chairman Powell also stated on February 11 that no federal regulatory agency can replace the work of the Consumer Financial Protection Bureau, and if the CFPB were to close, there would be a gap in consumer compliance protection. In addition, Barr provided more details on the pressures facing the US banking industry in 2023. He stated that over 1,800 institutions borrow funds from the Fed's bank-term funding facility, a special arrangement to provide liquidity to banks facing deposit outflows or liquidity pressures. He noted that most borrowing comes from institutions with assets under $10 billion, stating "these smaller institutions account for 50% of borrowing but nearly 95% of total borrowing." He added, "Fed staff analysis shows that this practice is more likely in institutions experiencing deposit outflows, but is also common in institutions not experiencing outflows." He pointed out that when banks cannot provide credit to the economy, the impact is "severe and widespread." Barr also warned last Thursday that relaxing bank supervision rules and oversight could make financial institutions more susceptible to unexpected shocks. He emphasized the need to maintain a strong regulatory system to prevent the spread of financial risks. Although Barr will continue to serve as a governor at the Fed, 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 Fed has not announced Barr's successor.