The unique nature and business models of the banks that recently failed do not justify imposing new, overly complex regulatory and supervisory expectations on a broad range of banks, Federal Reserve Governor Michelle Bowman said today. Speaking at a conference on financial systems in Germany, Bowman pushed back against calls for broader regulation following the closures of Silicon Valley Bank and two other banks.
“If we allow this to occur, we will end up with a system of significantly fewer banks serving significantly fewer customers,” Bowman said. “Those who will likely bear the burden of this new banking system are those at the lower end of the economic spectrum, both individuals and businesses.”
Still, Bowman said there were steps regulators could take to identify the root causes of the bank failures and hold themselves accountable for supervisory mistakes. First, the Fed should engage an independent third party to prepare a report to supplement the limited internal review to fully understand the failure of SVB, she said. Second, supervisors need to do a better job identifying the most salient issues—such as concentration and interest rate risk—and moving quickly to remediate them. Finally, policymakers should consider whether there are necessary—and targeted—adjustments they could make to banking regulation. “This will likely include a broad range of topics, including taking a close look at deposit insurance reform, the treatment of uninsured deposits and a reconsideration of current deposit insurance limits,” she said.
Bowman also touched on the role of social media and other communications technology in fueling bank runs and negatively affecting bank stock prices. “The spread of information has always played an important role in bank confidence and bank runs,” she said. “When information is more readily and quickly accessible and shared among shareholders, creditors, customers and depositors, bank management needs to be attuned to how it communicates, especially when remediating identified weaknesses.”