Federal Reserve Governor Michael Barr on Thursday cautioned against efforts to shrink the U.S. central bank’s balance sheet by easing liquidity requirements for banks, arguing that such a move could weaken the resilience of the financial system and heighten risks during periods of market stress.
Speaking at an event hosted by the Money Marketeers of New York University, Barr said recent discussions around reducing the Federal Reserve’s “footprint” in financial markets by cutting the size of its balance sheet were misguided. Barr warned that several proposals aimed at achieving that goal could undermine bank resilience, disrupt money market functioning and ultimately threaten financial stability.
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