Fed Governor Barr Warns Deregulation Could Cut Bank Capital Buffers by $60B

Federal Reserve Governor Michael Barr warned this week that aggressive banking deregulation over the past year collectively weakens financial system resilience. In remarks at American University in Washington, Barr said regulatory changes—including reduced stress test rigor, softened leverage ratio requirements, and lower GSIB surcharges—lower required capital for the eight largest U.S. banks by roughly 6 percent, equivalent to approximately $60 billion in reduced capital buffers.

Barr emphasized growing interconnectedness between banks and nonbank financial firms as an amplifying risk. According to Barr, bank credit commitments to nonbank entities surpassed $2.6 trillion during the second half of 2025, reflecting rapid expansion of private credit and shadow banking. He argued that weaker bank safeguards while nonbank leverage grows could spread systemic stress rather than improve competitiveness. "Reducing financial regulation is effectively reducing insurance against risk," Barr said.