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The revival of Michael Barr — Some big news for financial regulation watchers: Former Treasury Department official Michael Barr has emerged as the frontrunner to be Fed regulatory czar, sources tell MM. Barr, now dean of the University of Michigan’s public policy school, played a major role in the crafting of financial safeguards in the wake of the 2008 Wall Street meltdown and has been a longtime consumer advocate.
Note that President Joe Biden has not definitively made a decision. The key question: Could Barr garner enough votes to be confirmed as Fed vice chair for supervision?
MM readers will remember that he was previously a leading candidate for another top position regulating banks, comptroller of the currency, but faced fierce opposition from progressive activists who criticized his ties to upstart finance companies like Lending Club and Ripple. Cornell Law Professor Saule Omarova was eventually nominated for the role — and then rejected by the Senate because she had advocated for the government to take a dominant role in finance.
Sarah Bloom Raskin, Biden’s previous pick for Fed vice chair for supervision, also had the stamp of approval of left-leaning advocacy groups but lost support from Sen. Joe Manchin because she had pushed for the central bank to do more to help tackle climate change.
Would Barr fare well with progressive Dems? Well, he played a critical role in forming the CFPB during the Obama administration, which means he has a good relationship with Warren, who established the consumer bureau and was mum on his candidacy last time around. Senate Banking Chair Sherrod Brown (D-Ohio) is expected to support him if he’s the pick, per a source.
What about Republicans? “I don’t think that it’s a given that Republicans should be expected to vote against the president’s nominees,” Barr told POLITICO last month, when asked about the vacant Fed job. “It ought not to be a partisan role.”
He said he disagreed with “a number of policies” that were pursued by President Donald Trump’s Fed vice chair for supervision, Randal Quarles, “but my disagreements were substantive, and I think his choices were substantive.”
Quarles pared down the post-crisis rulebook for big banks, prompting many Democrats to complain that he’d gone too far (though some Republicans argued he hadn’t done enough). “I would’ve done the job very differently than he did, but I don’t think of that as political,” Barr said.
It would be hard not to take this as a sign that some progressive groups had their chance on financial regulatory nominees and lost out in the Senate. The deal is not done yet, of course, and there’s a lot of support right now for Elise Bean (mentioned in Monday’s MM) among progressives, who believe she could garner some Republican votes. But MM hears that Barr has an advantage of already having been through the background-check process. Also, it seems like a lot of people just want someone in that job already.
IT’S TUESDAY — I’ll be your MM host all week. Send any tips to me at [email protected] or @vtg2, and to Aubree Eliza Weaver at [email protected] or @AubreeEWeaver.
WE DON’T TALK ABOUT MANCHIN, NO NO — Our Adam Cancryn and Eugene Daniels: “The fate of President Joe Biden’s domestic agenda may hinge on his administration’s ability to do one simple thing: Shut up.
“Four months after Biden’s Build Back Better plan collapsed amid a bitter back-and-forth with Sen. Joe Manchin (D-W.Va.), the White House is taking a final shot at resuscitating its social spending bill — and this time it’s vowing a sharply different approach to the negotiations.”
BANKS SET FOR BETTER-THAN-EXPECTED TRADING REVENUE — Reuters’ Matt Scuffham: “Trading may be a surprise bright spot for Wall Street banks in the first quarter, after clients rejigged portfolios in response to Russia’s invasion of Ukraine and interest rate hikes, analysts and executives say. But quarterly results from banks including Goldman Sachs and JPMorgan Chase & Co will show a sharp decline in investment banking revenues and in first-quarter earnings overall. That is due to companies pausing deals until choppy equity markets stabilize.”
HOW MUCH IS IT COSTING COMPANIES TO LEAVE RUSSIA? — NYT: “A slew of companies have announced plans to stop business in Russia over the last several weeks, and many of them are now sharing what those decisions may cost them. Some companies had limited exposure to Russia and signaled that the expected losses were not significant. JPMorgan Chase’s chief executive, Jamie Dimon, told shareholders that the bank wasn’t ‘worried’ about the impacts from leaving Russia. For industry giants like Shell, the financial hit — while large — accounts for just a small fraction of their profits.”
CREDIT MARKETS BACK ON DOWNWARD PATH — Reuters’ Davide Barbuscia: “A rally in U.S. credit markets after the U.S. Federal Reserve started hiking rates last month was short-lived and some corporate bonds hit new lows on Monday amid rising bond yields and concerns over the economic outlook. BlackRock’s iShares iBoxx $ High Yield Corporate Bond ETF — an exchange-traded fund which tracks the U.S. junk-bond market — fell 0.6 percent to trade at $79.76 a share on Monday, its lowest since May 2020. Its investment grade equivalent was also down sharply, by over 1 percent, hitting its lowest since March 2020.”
STOCKS FALL ON WALL STREET, LED BY TECH SLUMP — AP’s Damian J. Troise and Alex Veiga: “Stocks fell on Wall Street Monday, extending a losing streak from last week. The S&P 500 lost 1.7 percent, the Dow Jones Industrial Average fell 1.2 percent and the Nasdaq fell 2.2 percent. Technology stocks sank and were the biggest weights on the market. Energy companies also slipped along with falling crude oil prices. Twitter rose after Tesla CEO Elon Musk said he wouldn’t be joining the company’s board after all. Musk recently became the company’s biggest individual shareholder and is now free to increase his stake. The yield on the 10-year Treasury note rose to 2.78 percent.”
FED’S EVANS SAYS GOOD POSSIBILITY OF 50 BASIS POINT RATE RISE IN MAY — WSJ’s Michael S. Derby: “Federal Reserve Bank of Chicago President Charles Evans said Monday an aggressive interest rate increase is a possibility at the U.S. central bank’s policy gathering in early May. A 50 basis point rate rise at the May 3 and 4 Federal Open Market Committee meeting ‘is obviously worthy of consideration, perhaps it’s highly likely,’ he said, as the Federal Reserve lifts its still very low federal-funds rate toward a neutral setting of between 2.25 percent and 2.50 percent by the end of the year. Mr. Evans, who isn’t currently a voting member of the rate setting FOMC, weighed in while speaking at an event in Detroit.”
NEW YORK FED: PUBLIC EXPECTATIONS FOR MARCH 2023 INFLATION HIT RECORD — WSJ’s Derby again: “Public expectations for the level of inflation a year from now hit a record in March, according to a survey released Monday by the Federal Reserve Bank of New York. The New York Fed said that respondents believe inflation will hit 6.6 percent in March 2023, up from the 6 percent they had predicted in February. That was the highest reading in a survey that goes back to 2013, and arrives in a climate where inflation data has been hitting highs last seen 40 years ago. But the New York Fed also reported that public expectations for inflation three years from now, in March 2025, moderated to 3.7 percent from February’s 3.8 percent forecast.”
IMF: NEW MECHANISMS NEEDED FOR DEBT STRESS — Reuters’ Andrea Shalal: “Sharply higher global food and energy prices due to the war in Ukraine are hitting poor countries, and better mechanisms for dealing with sovereign debt stress will be needed to stave off defaults, the IMF said on Monday. ‘The war in Ukraine is adding risks to unprecedented levels of public borrowing while the pandemic is still straining many government budgets,’ Vitor Gaspar, director of the International Monetary Fund’s fiscal affairs department, and Ceyla Pazarbasioglu, the IMF’s strategy chief, wrote in a new blog.”
INVESTORS TURN CAUTIOUS ON CONSUMER DEBT — WSJ’s Matt Grossman and Matt Wirz: “Investors are growing more skittish about bonds backed by consumer debt, worried that inflation and slowing growth will increase the number of low-income borrowers falling behind on car payments or credit-card bills. Buyers of bonds backed by subprime car loans or credit cards are demanding the highest premiums over interest-rate benchmarks since mid-2020. Meanwhile, investors have punished shares of some financial-technology companies that helped fuel a recent surge in consumer borrowing, such as Affirm Holdings and Upstart Holdings.”
WELLS FARGO: BATTERED SMALL-CAP STOCKS ARE POISED FOR A ‘RELIEF RALLY’ — Bloomberg’s Jess Menton: “U.S. small-cap stocks have been down so long it looks like up to Wells Fargo. The Russell 2000 Index, the benchmark gauge for small-cap stocks, has tumbled more than 18 percent from its record close on Nov. 8, putting it on track to sink back into a bear market, or a drop of 20 percent from its peak. Rising borrowing costs have pressured shares of small companies, which are typically heavily indebted and tend to have less-diversified business lines. But the scale of the drop may help spur a ‘relief rally,’ Wells Fargo strategists led by senior equity analyst Christopher Harvey wrote in a note to clients.”
