Responsive and Responsible Bank Regulation and Supervision Discussed by Governor Michelle W. Bowman

Salzburg, Austria – In a speech delivered at the Salzburg Global Seminar on Global Turbulence and Financial Resilience, Governor Michelle W. Bowman emphasized the need for a responsive and responsible regulatory framework in the United States. As regulators evaluate the effectiveness of reforms implemented after the 2008 financial crisis, Bowman highlighted the importance of adapting to changing economic conditions and emerging risks while ensuring transparency and accountability.

Governor Bowman acknowledged the recent stress in the banking system and the failures of Silicon Valley Bank (SVB), Signature Bank (Signature), and First Republic Bank, along with the merger of Credit Suisse into UBS. These incidents exposed weaknesses in risk management practices and supervisory priorities, prompting the need for regulatory reform efforts to strengthen the financial system.

To gain a comprehensive understanding of the factors contributing to recent bank failures and the resulting stress, Governor Bowman proposed engaging an independent third party for a thorough analysis. The current reviews, conducted internally by Federal Reserve supervision staff, were deemed limited in scope and potentially lacking impartiality and independence. Additional independent reviews would provide valuable insights and inform necessary changes to supervision, regulation, and emergency authorities.

Governor Bowman stressed the importance of effective supervision and the need for clear expectations and prompt remediation when institutions fail to meet those expectations. She refuted claims that recent bank stress was a result of a less assertive supervisory approach, emphasizing that the banking system remains strong and resilient due to the extensive reforms implemented post-2008. She questioned the justification for higher capital requirements and emphasized the significance of a balanced approach to avoid hindering bank lending and diminishing competition.

Supervisory reform proposals were also addressed, emphasizing the need for additional review, analysis, and discussion. Governor Bowman highlighted the importance of a transparent and accountable supervisory framework that does not compromise the ability of examiners to identify and address issues. Drawing parallels to the savings and loan crisis of the 1980s, she emphasized the importance of supervision programs in identifying material risks to banking institutions.

Governor Bowman called for a responsible reform of the regulatory framework, incorporating principles of transparency, accountability, efficiency, and due process. She emphasized the need to evaluate the consequences of revisions to ensure the effectiveness and impact on the broader financial system. While supportive of appropriate reforms, she cautioned against increases in capital requirements that could impede credit availability and increase costs.

Regarding international capital standards, Governor Bowman emphasized the importance of promoting consistency and parity across jurisdictions while avoiding excessive gold-plating. She highlighted the impact of capital requirements on non-bank financial services firms and warned that rising requirements could create a competitive disadvantage for banks, potentially pushing financial activity out of the regulated banking system.

In conclusion, Governor Bowman emphasized the need for a regulatory framework that adapts to changing conditions, promotes transparency, and balances the objectives of safety and soundness with the broader impact on the economy. The ongoing review and reform efforts will shape the future of bank regulation and supervision in the United States, ensuring a resilient and competitive banking system.

https://www.federalreserve.gov/newsevents/speech/bowman20230625a.htm


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