Fed Governor Barr warns against loosening bank liquidity as Fed balance sheet shrinks amid Warsh debate
Loosening liquidity rules could force emergency Fed rescues
Federal Reserve Governor Michael Barr urged policymakers to avoid shrinking the Fed’s balance sheet by easing bank liquidity requirements. He warned such changes could weaken financial resilience, disrupt money market functioning, and raise the chance that banks would need emergency central bank support during stress. Barr pointed to the 2023 banking turmoil as evidence regulators should strengthen, not loosen, liquidity buffers. His remarks arrive as debate intensifies over a possible future Fed direction under Kevin Warsh, who favors a smaller balance sheet and argues it could create more space to cut rates.
- Barr cautioned against easing bank liquidity to reduce Fed asset holdings
- He warned this could undermine resilience during market stress
- Lower liquidity buffers may increase reliance on emergency Fed support
- 2023 banking turmoil, Barr said, argues for stronger liquidity rules
- Fed assets sit around $6.7 trillion after cutting over $2 trillion
- Barr dismissed balance sheet size as the main measure of influence
This summarization was done by Beige for a story published on 
The Economic Times