Regulators need to acknowledge that changes to supervisory expectations and processes, along with the sheer number of new and proposed rules recently introduced, “will undoubtedly present additional challenges and risks for banks,” Federal Reserve Governor Michelle Bowman said today. Speaking at a banking conference in New York City, Bowman reiterated her concern about the new bank regulations that have been proposed recently, some in response to last year’s bank failures.
“While some changes to the supervisory process and priorities may be appropriate to promote a safe and sound financial system and enhance financial stability, having an appropriate focus on the most salient risks is important for effective risk management and effective supervision,” Bowman said. “We should be cautious that these changes do not distract banks or supervisors from focusing on core and emerging risks or impair the long-term viability of the banking system—especially for midsized and smaller banks.”
Bowman also urged banks to have emergency contingency funding plans in place, which may include borrowing from the Federal Home Loan Banks or the Fed’s discount window. However, with regulators preparing to unveil new liquidity regulations, she urged caution in how they approached the issue.
“While it may be appropriate for supervisors to encourage banks to establish and maintain contingency funding sources, test the contingency funding plans and evaluate whether those plans are adequate in the context of examination, supervisors are not bankers,” Bowman said. “And we must be cautious not to cross the line from supervisor to member of the management team and avoid interfering with the decision-making of bank management.”
