Fed’s Bowman again urges targeted regulatory response to bank failures

In a speech today, Federal Reserve Governor Michelle Bowman once again called for a “targeted” regulatory response to the recent bank failures, pushing back against broader reforms that “appear to advocate a shift away from tailoring and risk-based supervision.” Bowman’s remarks at the Texas Bankers Association Annual Convention in San Antonio mirrored her comments from more than a week before, when she cautioned that broad regulatory changes could do more harm than good.

“Radical reform of the bank regulatory framework—as opposed to targeted changes to address identified root causes of banking system stress—is incompatible with the fundamental strength of the banking system,” Bowman said at the convention. “I am extremely concerned about calls for casting aside tiering expectations for less complex institutions, given the clear statutory direction to provide for appropriately calibrated requirements for these banks.”

Bowman said a targeted solution would instead focus on actual risks, on the improvement of supervision and risk management, and on prompt remediation of supervisory issues. She also said that in times of stress, regulators need to be forward focused on bank preparedness so that banks are positioned to address issues of concern. “These include being prepared to address contingency funding needs, with a plan in place that has been tested and is ready to be executed. Regulators need to be supportive of this kind of planning,” she said. “One of the preliminary lessons learned from the recent bank failures is that bank management, and their boards of directors, should be prepared to test the banks’ ability to manage liquidity needs during times of stress.

“This is one area where I think bankers can make an important, immediate contribution,” Bowman added. “I strongly encourage bankers to consider creating a plan to handle liquidity needs during times of unexpected stress—and then test the ability to execute the plans.”