New Fed banking chief targeting 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 preparations and both the safety and fairness of the finance industry.

Fed Governor Michael Barr, whose title of vice chair 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 over stablecoins, or cryptocurrencies pegged 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 a push for a system that is not only financially sound but also fair, particularly to those at the lower end of the income spectrum with less access to banking services, would be a major priority.

“Fairness is fundamental to financial oversight, 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 necessary to make their financial decisions, and protection from unfair treatment,” Barr said in a speech at the Brookings Institution in Washington, D.C.

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

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

“Stablecoins, like other unregulated private money, could pose financial stability risks,” Barr said. “I believe Congress should work expeditiously to pass much-needed legislation to bring stablecoins, particularly those designed to serve as a means of payment, inside 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 on the issue is “important, but narrow.”

Along with the Office of the Comptroller of the Currency and the FDIC, the Fed is working up ways it wants banks to “identify, measure, monitor, and manage the financial 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 provides consumers with access to services and information to protect them from abuse.

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

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