Fed Official Michael Barr Provides an Inside Look at Crisis Response
Barr, who is stepping down this week as the Fed’s vice chair for supervision, reflected on the response to the collapse of Silicon Valley Bank in a talk presented by the Yale Program on Financial Stability.
Michael Barr, vice chair for supervision at the Federal Reserve, visited Yale SOM on February 25 to make one of the last public statements of his tenure. He announced in January that he would step down as vice chair on February 28, while continuing to serve as a member of the Federal Reserve Board of Governors.
Barr, who has served in the role since 2022, spoke in an event presented by the Yale Program on Financial Stability (YPFS). He gave a blow-by-blow account of the response to the collapse of Silicon Valley Bank and Signature Bank in March 2023, and offered principles for responding to fast-moving crises with the potential to cause wider harm to the financial system.
“One clear lesson from this experience and from other crises I’ve been involved in or witnessed, is how important it is that the response be forceful enough to convince market participants and the broader public that there is a capability and the will to overcome the crisis,” he said. “A second principle though is that the response should be proportionate. While a forceful response is important to bolster confidence in the prospects for gaining control over the crisis, the response also must avoid shaking confidence by suggesting that conditions are worse than they seem in a crisis.”
Answering questions from Professor Andrew Metrick, director of YPFS, and the audience, Barr looked back at his role in the creation of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2009 and 2010, when he served as assistant secretary of the treasury. “I have a special sweet spot in my heart for the Consumer Financial Protection Bureau that we created as part of the Dodd-Frank Act that I think has done enormous good for American consumers, American households, and helped level the playing field also between the banking sector and the non-banking sector in terms of compliance with consumer law,” he said.
He also warned of the risks of stablecoins, cryptocurrencies that are pegged to the dollar. “They basically borrow the trust that you all have in the central bank. And because of that it’s really important to us as the central bank that they be regulated appropriately…. That to me is a significant risk and one that should be addressed. Congress has been working on bipartisan legislation on stable coins for a number of years now, and I think it would be good to get that over the finish line.”
