Shen Ting/Bloomberg
NEW YORK — Federal Reserve Vice Chairman for Supervision Michael Barr said the central bank has no intention of dominating instant payments.
Speaking at an event hosted by The Clearing House, a payment processor owned by a major bank with an instant payments network, Barr said he expected the Fed Recently launched federal current system to complement its private sector competitors.
“We actually have a very long history in this country of having public rail and private rail, and that’s how most of our payment technologies have evolved over time,” Barr said on the private side. We do think these things are complementary. We work closely together. “
Barr’s remarks were part of a wider conversation with Joe Weisenthal and Tracey Alloway, hosts of the Bloomberg podcast “Odd Lot.” Discussion touches on other payment innovations, digital assets, Treasury market functionsdevelopments in regulation and oversight, and Barr’s views on monetary policy.
The hour-long event begins the next day Clearing House Annual Meeting Ending a busy week for the Federal Reserve’s top regulator linger in front of congress twice gave a speech last week at the Federal Reserve Bank of New York on the regulation of the Treasury market.
On the topic of FedNow (the one most relevant to payments-oriented events), Barr noted that adoption of the system will take years and will be largely driven by The evolution of use cases He added that he expects banks to adopt FedNow and RTP in general.
He also explained why the Fed lags far behind other central bank peers in developing an instant payments system. The UK launched this version in 2007.
“The Fed is a conservative agency, and I think that’s appropriate,” Barr said. “People expect us to provide reliable services that they can trust, and we earn that by being very, very careful in everything we do.” Trust. That’s what’s true for FedNow as well.”
Barr said he hopes banks will implement faster payments technology to give customers faster access to funds, which he called “a wonderful thing for society.”
“We may eventually get to a situation where we can have a significant effect on reducing overdraft fees, insufficient funds, fees, and small businesses can immediately get paid for the work they do. That would be a huge benefit to American society. , “He said. “One of the potential benefits of FedNow is the ability to actually provide households and businesses with the banking services they want, which will reduce their risk.”
Barr noted that many banks have begun moving away from reliance on such fees. He said he hopes FedNow can continue this trend.
While the Fed is focused on expanding access in the short term, Barr said the launch of the platform does not mark the end of its efforts to innovate in payments. He noted that some central bank exploration of crypto-assets could lead to advances in payments.
“Over time, we hope to add more features to FedNow that will make it easier for banks to use, better to use, and better to serve families and businesses. I think these innovations are really important,” he said. That’s important. And then we’re also doing very basic research around new technologies like decentralized ledger technology, using cryptography to send payments back and forth. This very basic research may help us continue to innovate.”
Likewise, while Barr is skeptical of some of the exaggerated claims about central bank digital currencies, he said the Fed’s continued exploration of the technology will be important in determining potential benefits.
“This research is important because we may discover ways to improve the efficiency of payment systems, which could help banks, households and businesses conduct transactions more cost-effectively,” he said. People have raised concerns about central digital currencies. All very big claims, but I do think the underlying technology, if it can reduce costs and increase efficiency, then those things are worth looking into. “
Supervision and Supervision
Barr also discussed his ongoing efforts with the heads of the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency to rewrite regulations and improve bank supervisory practices.
On the regulatory front, Barr argued that proposed changes to risk-weighted capital requirements for large banks would at best result in a slight increase in the cost of credit for individuals while significantly strengthening the banking system.
“If there was no competition at all and all [the additional cost] If passed on to borrowers, the average increase would be 0.03%,” he said. “So the change in credit costs has been very, very small, but banks’ resilience has increased significantly.”
Capital proposals and other changes being considered by federal regulators have sparked a fierce and increasingly public debate in Washington and across the country. They’ve also sparked some debate. Differences of opinion within the organization they themselves.
Barr has said he wants as much board-level support as possible for capital proposals, but he has also said he won’t insist on unanimous consent. On Friday, he said he welcomed the intense debate within the Fed over the direction of the capital proposals. regulatory policy.
“We had one or two board members who disagreed with the recommendations I made on some issues, and I think that made us a better institution, first, to have conversations and try to reach consensus, and second, if we can’t get there, otherwise There will be a different voice,” Barr said.
When it came to oversight, Barr reiterated his commitment to improving regulation. The culture of the Fed’s oversight and inspection divisions.
“One of the things we want to make sure is that regulators know that when risks warrant such action, they should act quickly, forcefully and with agility,” Barr said. “It does require a change in culture. It does require that.” We really make sure that reviewers are supported and empowered to take this step. We want to make sure they are trained and have strong guidance. I do think all of these measures are critical to making sure that we have an effective oversight system. “
Monetary policy and supervisory policy
Barr acknowledged that the collapse of three major banks earlier this year and continued stress in parts of the banking sector were the result of the Fed’s own monetary policy actions. He stressed that banks have a responsibility to manage interest rate risk on their own, but noted that Federal Reserve regulators have placed greater emphasis on such oversight this year.
Barr added that regulatory and governor stability concerns are topics the Fed is watching closely through its board of directors and the Federal Open Market Committee.
“If we don’t have a functioning financial system, we don’t have a functioning economy, so we have to be concerned about the financial stability risks in the system,” Barr said. “We have regular reports from the financial stability staff, not just on the board. Internally, but also publicly to the FOMC. FOMC members have an opportunity to comment on financial stability issues. Those things really go hand in hand.”
Barr said that in his view, the Fed’s monetary tightening cycle is nearing its end. He believes that the risk of interest rates being too high is getting closer to the risk of interest rates not rising high enough.
“We are probably at or near the peak that we need to be in terms of taking a sufficiently restrictive monetary policy stance that would bring inflation down to 2% on a sustained basis,” he said.