Fed's Barr Says Trump-Era Big Bank Deregulation Leaves Community Banks Exposed To Fallout

Federal Reserve Governor Michael Barr reportedly expressed concerns on Wednesday with the central bank’s deregulation proposal, which regulators appointed by President Donald Trump have supported.

Speaking at a community banking research conference at the St. Louis Fed, Barr said that the recent capital standards proposal threatens protections for small banks. “These shifts would not make the system safer; they would leave community banks once again exposed to the fallout if the largest players stumble,” Barr said.

The Fed governor added that strong banking reforms, including higher capital requirements, tougher liquidity norms, and rigorous stress testing, have helped in safeguarding the U.S. economy. “As community bankers well know, it was not community banks that fueled the 2008 financial crisis — it was the largest, most complex firms whose excessive risk-taking nearly brought down the system,” he said.

Big banks have lobbied for a review of the capital requirements after the Biden administration announced a major hike. According to an analysis by JPMorgan, bank deregulation would help lenders allocate an excess capital of $200 billion toward loan growth, share buybacks, dividends, and mergers and acquisitions.

“Further, a friendlier regulatory backdrop could also support an improvement in deal activity across non-financial sectors. There is pent-up demand after three years of subdued deal activity, and private equity sponsors have $4 trillion in dry powder,” the firm said in the note.

Meanwhile, U.S. equities rose in Wednesday morning’s trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 0.39%, the Invesco QQQ Trust ETF (QQQ) rose 0.59%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) gained 0.22%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bearish’ territory.

The iShares 7-10 Year Treasury Bond ETF (IEF) was up 0.11% at the time of writing.

Also See: Jensen Huang Reportedly Downplays AI Bubble Concerns: 'What's Going On In The World Versus What Happened In 2000 Is Just Dramatically Different'

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