Federal Reserve Governor Michelle Bowman today outlined her priorities as vice chair for supervision, calling for a reemphasis on regulatory tailoring, a rethinking of capital requirements, a review of many of the rules and regulations enacted in recent years, and a streamlining of the review process for de novo and bank merger applications.
The Senate this week confirmed Bowman as vice chair for supervision, a position previously filled by Fed Governor Michael Barr. In a speech at Georgetown University, Bowman said her approach to supervision and regulation is pragmatism, “which focuses on first identifying the problem to be solved and then developing efficient solutions.”
“Once we have identified a need for reform, or a problem to be solved, our next task is to conduct a careful analysis of the intended and unintended consequences of any proposed policy solution, and to consider alternative approaches that lead to lower cost or better outcomes,” Bowman said.
Among Bowman’s priorities as vice chair:
Regulatory tailoring. Bowman was critical of the Fed having “pushed down” requirements developed for the largest firms to smaller banks. “One approach that would preserve tailoring is to create an independent community bank supervisory and regulatory framework to clearly separate these banks from larger bank supervision and regulation,” she said. She also called for both regulators and policymakers to rethink the current regulatory thresholds, adding that she will host a conference on small and community bank issues later this year to discuss the issue.
Check fraud. Bowman said past efforts by regulators to address check fraud have been “frustratingly slow” to advance and seem to have done little to address the underlying root causes for the increase in fraud. “I will continue to work to identify specific actions that can be taken to reduce the incidence of fraud, including through expediting the remediation process from check fraud after it occurs,” she said.
Ratings. The Fed will soon address the “odd mismatch” between financial condition and supervisory ratings by proposing changes to the large financial institution ratings framework, Bowman said. It will also consider the appropriateness of the broader ratings framework, which applies to smaller institutions, including the CAMELS framework.
Revisiting guidance. Bowman pledged to review a wide range of existing guidance, including outstanding supervision and regulation letters.
Capital requirements. Bowman said she expected the Fed and other agencies to soon publish a proposal to address concerns with the enhanced supplementary leverage ratio for the largest banks. The Fed will hold a conference in July to address that and other issues with the current capital requirements framework, including a discussion of potential reforms to the Global Systemically Important Banks surcharge and the Basel III capital requirements. The Fed will also review and consider the community bank framework, “including capital requirements like the calibration of the community bank leverage ratio, and whether reforms to the capital framework for mutual banks can be improved to promote capital formation,” Bowman said.
Review of regulations. It is time to evaluate whether many of the regulations passed following the 2008 financial crisis remain relevant, Bowman said. “Some of the regulations put in place immediately after that financial crisis resulted in pushing foundational banking activities out of the regulated banking system into the less regulated corners of the financial system,” she said. “We need to ask whether this was and continues to be appropriate.”
Streamlining bank application reviews. Bowman said the process for reviewing de novo bank and bank merger applications should be transparent and include clear timelines for agency action. The Fed needs to consider ways to streamline how applications are reviewed to better accomplish those goals, she said. “One example is the perverse effect of ‘competitive’ screens that disproportionately affect transactions in rural and underserved banking markets. Another is the treatment of adverse public comments that may lack factual support or rely on matters already considered in the review process, including existing supervisory records.”
In a statement, American Bankers Association President and CEO Rob Nichols noted that Bowman spelled out several important priorities as she takes on her new role.
“In particular, we appreciate her strong commitment to regulatory tailoring, including the idea of indexing asset thresholds, and to ensuring that capital requirements are appropriately calibrated for banks of all sizes,” Nichols said. “We’re also encouraged to hear of forthcoming action by the Fed and other regulators to address the significant and growing threat of check fraud. ABA has been keenly focused on the fraud challenge, and we look forward to working with Vice Chair Bowman and other policymakers to advance solutions that will protect consumers and our financial system.”
