New Fed bank chief targets crypto and climate change as top priorities

The Federal Reserve’s new banking regulator outlined a broad agenda in a speech Wednesday that pushed for action on stablecoins, climate change preparedness and both the safety and fairness of the financial industry.

Fed Governor Michael Barr, whose title of deputy chairman for supervision gives him broad powers over the nation’s banks, gave his first policy speech since being confirmed by the Senate.

Among his priorities: a push for Congress to enact comprehensive regulation of stablecoins, or cryptocurrencies linked to other assets, often currencies.

He also said that next year the Fed will launch an exercise “to better assess the long-term, climate-related financial risks facing the largest institutions.”

And he said pushing for a system that is not only financially sound but also fair, particularly for those at the lower end of the income spectrum with less access to banking services, would be a key priority.

“Fairness is fundamental to financial supervision and I am committed to using the tools of regulation, supervision and enforcement so that businesses and households have access to the services they need, the information they need to make their financial decisions, and protection from unfair treatment “, Barr said in a speech at the Brookings Institution in Washington, DC

Barr now presides over a financial system that is generally believed to be well capitalized but was still hit by market disruptions that required Fed intervention in the early days of the Covid crisis. The rise of cryptocurrencies and stablecoins has also created challenges for the Fed, which is exploring its own potential digital currency.

He called for increased scrutiny of the crypto industry and the risks it poses.

“Stablecoins, like other unregulated private money, can pose financial stability risks,” Barr said. “I believe Congress should work quickly to pass much-needed legislation to bring stablecoins, especially those designed to serve as means of payment, within the prudential regulatory perimeter.”

On climate change, Barr waded into an area that has drawn criticism from some Republican congressional leaders who believe the Fed is overstepping its mandate.

Barr said the Fed wants to understand the risks that climate events pose to the system, while acknowledging that the central bank’s interest in the matter is “important but narrow.”

Together with the Office of the Comptroller of the Currency and the FDIC, the Fed is working on ways it wants banks to “identify, measure, monitor and manage the economic risks of climate change. In addition, we are considering how to develop and implement climate risk scenario analyses.”

On the fairness issue, Barr said he wants a system that gives consumers access to services and information to protect them from abuse.

“When innovative financial products develop and grow rapidly, the excitement can exceed the proper assessment of risk,” he said. “As we’ve seen with the growth of cryptoassets, in a rapidly rising and volatile market, participants can come to believe they understand new products only to learn they don’t, and then suffer significant losses.”

Barr said he will also work to ensure that banks participating in crypto-related endeavors have risk controls in place.