Governor Michelle W. Bowman, a member of the Board of Governors of the Federal Reserve System, emphasized the need for a responsive and responsible regulatory framework in the banking sector. Speaking at an event in Salzburg, she discussed the importance of adapting to changing economic conditions and emerging risks while ensuring transparency and open debate in regulatory adjustments.
Governor Bowman highlighted recent stress in the banking system and the failures of certain banks, underscoring the deficiencies in risk management practices and supervisory priorities. To address these issues, she proposed an independent third-party review to thoroughly analyze the factors contributing to recent bank failures and stress in the banking system. The goal is to provide a comprehensive understanding of the events and improve the impartiality and effectiveness of future reviews.
Furthermore, Governor Bowman emphasized the need for effective supervision and regulation, focusing on core banking risks such as liquidity and interest rate risk. While supporting certain reforms, she expressed concern that higher capital requirements could hinder bank lending and competition without addressing the underlying effectiveness of supervision. She debunked the notion that recent bank stress resulted from a less assertive supervisory approach, highlighting the strength and resilience of the banking system today compared to pre-2008 financial crisis.
Governor Bowman called for improvements in supervision, transparency in supervisory expectations, and a clear regulatory approach to novel banking activities, including including banking as a service and digital assets. She stressed the importance of evaluating the consequences of regulatory revisions and considering the impact on the broader financial system. While supportive of Basel III endgame reforms, she emphasized the need for public comment and transparency in the rulemaking process.
Governor Bowman also urged policymakers to be mindful of the impact of capital requirements on international competition and the shadow banking system. Higher capital requirements could create a disadvantage for regulated banks compared to non-bank competitors, potentially shifting financial activity out of the regulated banking system.