The Federal Reserve will divide its bank supervision into five geographic regions rather than splitting it among the 12 Reserve Bank districts, which should enhance transparency and accountability, Fed Vice Chair for Supervision Michelle Bowman said today.
During a speech at the Community Banking Research Conference in St. Louis, Bowman announced plans to split supervision into five regions that follow state borders rather than the Fed districts. As for the reason, she cited a recent independent review of the Fed’s handling of the 2023 Silicon Valley Bank failure that concluded supervisors did not fully appreciate the extent of the vulnerabilities as the bank grew in size and complexity.
“The execution of Federal Reserve supervision is the responsibility of the vice chair for supervision, but it is conducted by the Reserve Banks,” Bowman said. “As the review noted, for decades that structure has disincentivized a critical link between responsibility and accountability and has been further complicated by a complex web of dozens of committees, resulting in dysfunction when critical decisions are most needed.”
Each new area will be led by a regional leader accountable for all supervisory activity, supported by the existing Reserve Bank footprints but aligned to state boundaries, Bowman said. She didn’t say which states the different regions would encompass, but that they would be informed by the regional structure of the Conference of State Bank Supervisors, which is split into five districts.
“By following state lines rather than Reserve Bank District boundaries, we can coordinate more effectively and efficiently with our state and federal regulatory partners,” Bowman said. “The regional structure creates scale in our operations. It simplifies our leadership structure while preserving local supervision by examiners. They will remain in the existing Reserve Bank locations across each region, continuing to oversee the banks they currently supervise. This approach clarifies accountability and decision-making and enables a consistent application of supervision.”
Re-examining regulation and supervision
Bowman also used her speech to highlight several regulatory reforms pursued by the Fed in the past year and a half, most aimed at helping community banks. They include efforts to update and index outdated asset thresholds, to ease regulatory burdens hampering bank mergers and de novo bank formation, and to refocus bank supervision on risks that lead to material financial harm.
“As we continue to move forward, it is important to reiterate our commitment to risk-focused regulation and supervision, and a strong foundation of capital and liquidity,” she said. “Our supervision prioritizes those matters that present or could lead to material financial impairment. These approaches allow us to empower examiner judgement and expertise, leading to more timely and effective supervisory outcomes.”
