WASHINGTON — Federal Reserve Vice Chair for Supervision Michael Barr Wednesday said liquidity pressures that caused
In the remarks — delivered to a crowd at the National Community Reinvestment Coalition's Just Economy conference — Barr said regulators are particularly focused on certain banks that have high levels of unrealized losses on securities on their balance sheets as well as those with concentrated investments in commercial real estate. Particular kinds of CRE properties — namely offices — he said, pose more risk than others.
"The office commercial real estate sector is under stress more than other parts of the sector and there's heterogeneity around the country," he said. "We're just looking very carefully at banks that have heavy concentrations in office commercial real estate where there are significant expected price declines."
Regulators have
"Commercial real estate properties refinance at a periodic cycle. Those are not all done in one year or one month; those are being refinanced slowly over time, so over the next two to three years," he said. "We're going to see how properties deal with that refinancing in a higher interest rate environment than the extremely low interest rate environment they were operating in pre-2019."
The Fed official also touched on the agency's approach to considering bank mergers, at a time when its fellow bank regulators — the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency — recently updated their own merger consideration policies. Barr said while the Fed is evaluating its guidelines on approving mergers between banks, the central bank is unlikely to update its policies at this time.
"I think it's a pretty robust process that follows our existing guidelines in this area," he said. "We are working with the other bank agencies and the Justice Department, to see whether those should be updated. But that's work that we're thinking about on an interagency basis rather than just us doing something."
Barr also spoke to interviewer Victoria Guida of Politico about the ongoing legal battle over an overhaul of implementing regulations for the 1977 Community Reinvestment Act — reforms that have been in the works for years under two administrations. Banking trade groups sued the regulators arguing, among other things, that the final rule goes beyond the scope of the statute and violates the Administrative Procedure Act. The opponents of the CRA won a
While Barr would not comment directly on the suit, he did push back on the spirit of the lawsuit, saying Congress gave regulators ample latitude to update the CRA when necessary.
"They wrote it in 1977 in a broad way, and they left it to the banking agencies to make sure that CRA kept working over time," he said. "It was written in such a way that it permits the bank agencies to get together periodically as we did in 1995 and now, almost three decades later in the 2023 rule, to make sure that it keeps pace with the modern world we live in."
Another agency rulemaking that has elicited industry backlash is the Basel III endgame capital requirements, which would compel banks to increase the ratio of equity they use to fund themselves. Fed Chair Jerome Powell
Barr dismissed any "external chatter" about the rule, and focused on the particular comments the agency is carefully considering.
"We take all the comments we get on these kinds of issues very seriously, we're taking these very seriously. I expect we will make adjustments to the final rule," he said. "I think it will be a good, strong rule when it's done, but we're going to make changes along the way."
