Fed's Barr: Regulatory relief increased big bank profits, not lending

• Key insight: As the Trump era banking agenda rolls on, a holdover appointee from the Biden administration says the benefits are not being evenly distributed. 
• Expert quote: "The share of executive compensation as a share of revenue went up by 18% from last year and the share buybacks are up 66%. That's not benefiting communities around the country, that's not benefitting community development banks and I think that's a problem." — Federal Reserve Gov. Michael Barr
• Forward Look: Barr said the reforms could be setting the stage for future distress in the financial system as capital requirements are being lowered at the same time that supervisory discretion is being pared down.

Recent reforms by the federal banking agencies have benefited the largest banks in the country while offering little benefit to community banks or the broader economy, according to one official on the Federal Reserve Board. 

Fed Gov. Michael Barr, speaking at an event hosted by the Community Development Bankers Association on Tuesday morning, said the various regulatory changes and proposals issued during the past year — including changes to capital standards and liquidity requirements — have disproportionately benefited the biggest banks in the country. 

Barr was appointed vice chair for supervision at the Fed by then-President Joe Biden in 2022 but resigned in February 2025. He said the eight global systemically important banks have enjoyed $65 billion of capital relief as a result of the changes. That increased balance sheet capacity has not resulted in an increase in lending, he argued.

"The share of executive compensation as a share of revenue went up by 18% from last year and the share buybacks are up 66%," Barr said. "That's not benefiting communities around the country, that's not benefitting community development banks and I think that's a problem."

Meanwhile, Barr said, smaller banks and, specifically, community development financial institutions, or CDFIs, have been "overlooked" during the current deregulatory moment. 

Barr also said the reduction in regulatory standards is coming at a time when the Fed, along with the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency, is paring down supervisory discretion. This effort has included removing reputational risk from supervisory considerations and a proposal to limit examiners' ability to cite banks for management issues. 

Altogether, Barr said, these reforms could be setting up the financial system for volatility down the line.

"Long-term, it raises concerns that we will increase the risks of financial stress — not today or tomorrow, the financial system is very, very sound — but over the long-term," he said. "As you see lower levels of capital and less supervision, you increase the risk that down the road there might be a problem in the financial sector and that hurts all the work [CDFIs] do."

Barr has made his opposition to the Fed's deregulatory agenda clear at various points during the past year, through dissenting votes and statements. In an April speech, he said he feared these changes were contributing to a regulatory "race to the bottom." 

During the event, Barr also discussed other recent regulatory developments, including regulators' decision to undo the reforms it adopted for its Community Reinvestment Act compliance framework in 2023, and the oversight of stablecoins. 

The Fed, FDIC and OCC moved to withdraw their 2023 CRA rule in March 2025 in the face of a legal challenge from several banking groups — including the Independent Community Bankers of America, the American Bankers Association, the Texas Bankers Association and Independent Bankers Association of Texas. The U.S. District Court for the Northern District of Texas issued an injunction in early 2024, pausing the implementation of the rule.

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Barr said the agencies opted to withdraw the rule as a defensive measure, worrying that subsequent rulings against regulation would result in permanent damage to their ability to enforce the CRA — a civil rights era law aimed to reverse the impact of redlining in lending practices.

"We were concerned that if we didn't go to the court and rescind the rule, we would have a negative legal ruling on the books — that was wrong, in my judgement — but a negative legal ruling about CRA that would harm communities for decades afterward," he said. "So, that's why we are moving to rescind the rule … to have legal certainty for CRA and certainty for communities that CRA will continue serving us for many years to come."

Barr added that the uncertainty around the future of the rule was creating problems for all parties.  

"People couldn't plan about what technology they were going to use, what approach they were going to take, communities didn't know what standard was going to apply," he said. "That uncertainty was, I thought, quite harmful."

Barr also weighed in on the stablecoins, which have been the topic of ongoing debate on Capitol Hill as Congress attempts to hash out a regulatory framework for the digital assets. He said the technology has limited uses today — primarily crypto trading and cross-border remittances — but he could see it being useful for trade finance or corporate treasury management as well as payments more broadly. 

Barr said whether or not stablecoins should be able to offer yield-like rewards to users is an important question, but one that must be answered by lawmakers. Still, he said, the Fed and other agencies will have an important role in appropriately implementing whatever authorizing legislation is passed. 

"There are gaps in that system of oversight in the GENIUS Act that might present risks if regulators don't come together to plug those loopholes," he said. "That's another risk in that sector."