NEW YORK — The Federal Reserve's top regulator said he has no reason to believe banks are dropping customers based on their political actions or affiliations.
During a public appearance on Tuesday afternoon, Fed Vice Chair for Supervision Michael Barr said the claims of widespread "debanking" of Republicans — an allegation
"I haven't seen any evidence of that kind of activity," Barr said. "The thing that people raise more directly is a bank engaged in activities that are higher risk and therefore reducing their client exposure because of concerns about money laundering or terrorist financing, for example."
In these instances, Barr said, banks are voluntarily closing accounts of customers they suspect are engaged in illegal activity. He described the practice as "appropriate risk management."
Barr also pushed back against the idea that supervisors have
"We have a novel supervision program designed to supervise institutions in this space to make sure we have the expertise we need to do that right, and we have institutions doing it, and then we have other institutions that did it wrong and got themselves into trouble, either because of [anti-money-laundering, Bank Secrecy Act] problems, or because they were unable to meet the liquidity needs of their clients, and they went out of business," Barr said. "It's just straight-up-the-middle risk management and banking. If you do it right, you can do it, and if you don't do it right, then you shouldn't be doing it."
Barr's comments came during an onstage conversation with journalist and CNBC anchor Andrew Ross Sorkin at the Council on Foreign Relations, a Manhattan-based foreign policy think tank.
The event was Barr's first public speaking engagement since he announced last month that
Then-President Joe Biden
On Tuesday, Barr stood by the decision, maintaining that it helped avoid a legal battle that would have created a "huge distraction" for the Fed as a whole. He also waved off criticism from those that felt he should have stood his ground against the administration, or at least waited for it to formally try to remove him.
"This was a difficult decision for me to make and personally painful to me, but I'm the only one who can make it, and unless you've sat in the chair and you looked at the trade-offs, it's very easy to be a commentator on the sidelines and take shots. I'm used to people taking shots. It doesn't bother me," he said. "I think I made the right … judgment for the Fed, the right judgment for our economy, the right judgment overall for serving the public. Other people can have different views."
Before the conversation with Sorkin, Barr delivered a speech on generative artificial intelligence and its potential implications for the U.S. economy and financial system.
In his prepared remarks, Barr said the technology is likely "overhyped" in the near term — noting that its transformative effects are likely years away — but also underappreciated as a long-term change agent. He said the country should brace for a "painful" adjustment period as many jobs become obsolete and now is the time for policymakers to weigh their options.
"The kinds of things that we need to be focused on are things like universal basic income, income supports, current income tax credit, retraining measures, all those things," he said. "But, it is likely that this technology is going to be very disruptive, and we don't know precisely in what way."
Barr said banks should be investing in AI systems as well as training for their employees on how to use them. He said the Fed is beefing up its AI policies and capabilities, too.
Barr also weighed in on developments elsewhere in the government. He said the
"Neither of those areas are covered by the Federal Reserve or other prudential regulators, so I think a CFPB on the block is an important part of the overall picture," Barr said. "We need to make sure we have a marketplace that is appropriately covered for all products and services that affect consumers."
But he urged the audience members to look at the recent developments in the context of history, noting that the country has withstood sea changes in the government in the past.
"It is very easy in the current environment we're in to be focused on the kind of day-to-day issues that arise … but if you take a step back and look at the longer sweep of history, we have very, very strong institutions in the United States. They have survived lots of different stresses to them over the sweep of our history," Barr said. "We have an enormously successful, vibrant, energized economy that survives the ebbs and flows of different administrations. So, we're an incredibly strong country, in a big picture sense, and I'm not worried, in that sense."
