Fed Gov. Barr Argues Against Liquidity Changes; We Still Expect A Proposal

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Fed Gov. Barr Argues Against Liquidity Changes; We Still Expect A Proposal

TD Securities (USA) LLC POLICY NOTE

May 15, 2026

■WRG Financial Services Fed Gov. Barr Argues Against Liquidity

Changes; We Still Expect A Proposal

Jaret Seiberg THE TD COWEN INSIGHT

202 868 5313

Federal Reserve Gov. Michael Barr on Thursday night outlined his objections to reducing

jaret.seiberg@tdsecurities.com

the size of the Fed's balance sheet and adjusting liquidity requirements to include discount

window capacity. Though this tells us that the vote on the forthcoming liquidity reforms is

unlikely to be unanimous, we still expect the agencies to ease liquidity requirements for bigger

banks.

What Is Happening

Federal Reserve Gov. Michael Barr spoke Thursday night on the central bank's balance sheet

and liquidity rules.

Highlights included:

■Bank reserves represent $3 trillion of the Fed's $6.5 trillion balance sheet.

■Those reserves are critical to the resilience of the financial system

■They are also costless to the Fed as the Fed uses reserves to purchase Treasury securities.

■Earnings from that spread are returned to Treasury.

■In normal times, the duration of the Fed's Treasury holding should match the maturity

distribution of outstanding issuance.

■The Fed would increase duration risk when it wants to push interest rates lower.

■Bank liquidity requirements should be increased as the Silicon Valley Bank failure showed

they were not sufficient.

■Permitting banks to count discount window capacity toward liquidity requirements just

reduces self-insurance.

■Adjusting the liquidity stress test or the liquidity requirements related to resolution planning

could have a bigger impact though it would leave banks less able to self-insure against risk.