(Bloomberg) -- Former Federal Reserve Vice Chair for Supervision Randal Quarles criticized his successor’s plan to significantly increase capital requirements for big banks, saying it would needlessly hurt the economy.

“It’s a mistake,” Quarles, who now chairs the Cynosure Group, told a roundtable sponsored by the Securities Industry and Financial Markets Association trade group on Wednesday. “It will restrict the ability of the financial system to provide support for the real economy.”

Michael Barr, who took over as vice chair for supervision in July 2022, proposed this week a significant increase in big banks’ capital standards to strengthen the ability of those institutions to withstand shocks on their own and not require government bailouts. 

The plan, which Barr began working on shortly after he joined the Fed, was unveiled in the wake of the failure of several regional banks earlier this year.

Read More: Banks Face Higher Capital Requirements From US Regulators

Quarles argued that Barr appeared to be seeking to create a banking system in which no bank can fail. “That will almost inevitably be an inefficient system,” he said.

Instead, what’s needed is a banking system where banks can fail but do so without triggering financial instability, according to Quarles.

He agreed with proposed increases in banks’ capital to take account of trading and operational risks. But he contended that other capital requirements should be recalibrated so that the overall level of the banks’ cushion against losses is left roughly unchanged.

Quarles was appointed to the vice chair post by former President Donald Trump, a Republican. Barr was nominated to succeed him by Democratic President Joe Biden.

Quarles has faced criticism for leading the Fed’s effort to ease some regulations for mid-size lenders following 2018 legislation, which some Democrats have blamed for fueling the March banking turmoil. A Fed report on the failure of Silicon Valley Bank, led by Barr, blamed it in part on the Fed’s approach to bank supervision under Quarles and called for an extensive reexamination of requirements for US financial firms.

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