The Federal Reserve’s vice chair for supervision, Michael Barr, urged regulators to remain alert to financial system risks as he prepares to leave his supervisory role while continuing on the Board of Governors. Barr highlighted the importance of addressing issues such as climate risk and the nonbank sector, while also emphasizing the need to uphold the integrity of stress tests and regulatory oversight. He stated that capital requirements should correspond with associated risks. “We must be cautious about our ability to foresee shocks to the financial system,” Barr remarked during a speech at Georgetown University Law Center in Washington on Thursday. “This is why robust regulation and supervision are essential as shock absorbers to safeguard households and businesses from financial system risks.” His upcoming departure at the end of the month raises uncertainties regarding a proposal from U.S. regulators aimed at requiring the nation’s largest banks to maintain significantly higher capital reserves to mitigate losses and potential financial crises. The banking industry has contended that the initial proposal introduced in 2023 could disadvantage U.S. banks compared to their international counterparts. This situation follows the Fed’s recent announcement of plans to revamp its stress testing procedures for major lenders. Subsequently, banking and business organizations filed a lawsuit against the Fed concerning the annual tests, seeking greater involvement in the rule-making process. Barr reiterated the significance of the central bank’s independence from political influence. “I firmly believe — as Chair Powell has publicly stated numerous times — that the Federal Reserve’s independence is vital to fulfilling our statutory responsibilities and serving the American public. In simple terms, our mission is too crucial to allow any disputes to divert us from our duties to the American people,” he asserted. His remarks followed President Donald Trump’s executive order requiring independent agencies, including the Fed, to submit draft regulations for White House review and consult with the administration, although this order excluded monetary policy. Barr expressed his belief in the value of diverse perspectives among regulators, stating, “Diversity of thought is essential to avoid creating blind spots in the system.” Barr is scheduled to conclude his role as the Fed’s top banking supervisor on February 28, while also stepping down from the Committee on Supervision and Regulation, though he intends to remain on the Board of Governors.