What’s Next for Fed Oversight? Insight from Michael Barr’s Latest Speech
Tomorrow, February 28, 2025, marks the final day of Michael Barr’s tenure as Vice Chair for Supervision at the Federal Reserve. In his final speech, delivered just one day before stepping down, Barr reinforced the importance of the Novel Activities Supervision Program, a key initiative designed to provide enhanced oversight of emerging financial technologies and partnerships within the banking sector.
Barr’s Vision for the Novel Activities Supervision Program
Introduced in August 2023, the Novel Activities Supervision Program was created to ensure that banks engaging in new, technology-driven financial activities, such as partnerships with fintech firms, cryptocurrency-related services, and other innovative banking models adhere to appropriate risk management practices. In his February 27 speech, Barr emphasized that the program is critical to balancing innovation with safety and soundness in the financial system. He warned against loosening regulatory oversight in these areas, stressing that emerging technologies can introduce significant risks if not properly supervised.
What Happens Next?
With Barr’s departure, the fate of this program remains uncertain. The Federal Reserve has stated that major regulatory changes are on hold until a new Vice Chair for Supervision is confirmed. This opens the door for the new administration to influence the program’s direction.
Potential Successors and Their Impact on the Program
One of the leading contenders for the Vice Chair position is Federal Reserve Governor Michelle Bowman. Bowman, known for her pragmatic and industry-friendly regulatory approach, has spoken frequently about the need for regulators to foster innovation while ensuring financial stability. While she has not explicitly commented on the Novel Activities Supervision Program, her past statements suggest she may be inclined to adjust, rather than eliminate, the initiative.
If Bowman is appointed, refinements could include reducing compliance reporting requirements or adjusting risk assessment metrics while maintaining necessary oversight. Some reports have suggested that other potential candidates include Randal Quarles, the former Vice Chair for Supervision, and an unnamed external appointee with industry experience. If one of these candidates is appointed, they may take different approaches, ranging from maintaining Barr’s more stringent oversight policies to scaling back regulatory scrutiny on novel financial activities altogether.
The Future of Innovation Oversight at the Fed
The Novel Activities Supervision Program was one of Barr’s signature regulatory initiatives. Its continuation or potential modification will be a strong signal of how the new administration and the Federal Reserve plan to engage with financial innovation. While Bowman or another successor is likely to maintain some form of oversight over fintech and digital assets, a shift in regulatory philosophy could mean a greater emphasis on industry collaboration and streamlined compliance rather than heightened scrutiny.
As we await the appointment of a new Vice Chair for Supervision, financial institutions engaged in innovative activities should closely monitor any shifts in regulatory priorities. Whether the program remains intact, is modified, or is phased out, the next few months will be crucial in shaping the future of financial innovation oversight in the United States.
We will continue to monitor the evolving regulatory landscape under the new administration and provide timely insights on key changes.