Acknowledging that the incoming Trump administration will result in a shift in agency leadership and priorities, Federal Reserve Governor Michelle Bowman today outlined a more restrained approach to bank regulation based on three principles: Prioritization of safety and soundness, a re-commitment to regulatory tailoring and increased transparency.
“I am optimistic that by working collaboratively to focus on our statutory mandates, the banking agencies can improve how we fulfill our responsibilities in a fair, efficient and accountable way,” Bowman said during a speech at a California Bankers Association event. “Adopting a more pragmatic approach to policymaking, one that imposes discipline in the exercise of the extensive powers and important responsibilities granted by Congress, would be most effective.”
Bowman — who is viewed as a possible candidate for vice chair for supervision following the resignation of current Vice Chairman Michael Barr — said prioritizing safety and soundness means deprioritizing current policy objectives that are not essential to banking agencies’ statutory obligations. Many of those proposed policies were issued as a response to the Silicon Valley Bank failure, but they “targeted concerns well beyond remediating issues identified during the 2023 banking stress,” she said.
“When the agencies pursue reforms, it is critical that the problem is clearly identified and that an explanation is given for how each proposal would address the problem,” Bowman said. “We should not characterize all reforms as ‘crisis response’ actions, as doing so does not relieve us of the responsibility to analyze and justify the tradeoffs and alternatives of any particular measure.”
Bowman said some proposals over the past two years would effectively reduce the congressionally mandated requirement that agencies tailor their regulatory and supervisory requirements to bank size and risk. She cited the proposed Basel III endgame capital requirements and long-term debt rule as two examples of such erosion.
“I continue to believe that tailoring should be a central tenet of our regulatory and supervisory approach and framework and believe that we must renew our commitment to this philosophy going forward,” she said.
Finally, Bowman said regulators should operate in a transparent way and “meticulously follow” administrative procedures when revising the regulatory framework and their supervisory focus.
“I am not suggesting that there are always simple solutions to improve transparency, and certainly it is appropriate that much of the information developed in the supervisory process remains shielded as confidential supervisory information,” Bowman said. “But regulators must also acknowledge the new world in which we operate, one in which administrative law increasingly demands greater transparency and accountability to act as a check on regulatory overreach.”
