I’m grateful to the California Bankers Association for having me today. For the past seven years with the Federal Reserve Board, I’ve found that meeting directly with bankers is the best way to understand your insights about the banking landscape and local economic conditions.
I’ve been in my role as Vice Chair for Supervision for seven months now. It’s a true honor. In my time on the Board, I’ve seen the banking system navigate various challenges. This experience has shaped my view on ensuring it operates safely and soundly.
My approach to supervision and regulation is practical. It’s not just about safety; it’s about efficiency and innovation too, especially for small and community banks that play a vital role in places like my hometown in Kansas. I’ve pulled from my experience as a community banker and Kansas State Bank Commissioner to create a supervisory process that catches risks early and increases transparency.
Before joining the Board, I had direct insight into regulations and their impacts on banks of all sizes. I’ve noticed that sometimes, well-meaning regulations can get lost in technicalities, diverting attention from real issues that affect a bank’s safety.
By focusing on the why behind our changes, I hope to connect policy-making in Washington with everyday banking, ensuring our regulations are grounded in reality.
Moving Forward in Supervision
Since last June, we’ve made progress on a regulatory agenda I introduced. Supervision is key to maintaining safety in banking. We need to tailor our approach based on the unique characteristics of each institution.
For the first time, we published supervisory principles aimed at improving transparency and accountability in our examinations. The collapse of Silicon Valley Bank in 2025 highlighted flaws in our previous supervision that we must address moving forward. The lessons from Silicon Valley Bank serve as reminders of the risks we must prioritize.
We’ve also modernized the way we evaluate banks. For example, we’ve adjusted how we consider “well-managed” status in relation to overall risk. This ensures a more fair assessment rather than an excessive focus on individual metrics.
Shifting Focus on Financial Risks
In the past, the term “reputational risk” appeared in our supervisory processes but often diverted focus from more tangible concerns. We’ve removed it to better concentrate on material financial risks. Regulations shouldn’t aim to eliminate all risk but manage it in a way that allows banks to grow and serve their communities.
Since the 2008 mortgage crisis, regulations have increasingly overwhelmed banks, pushing some activities to less-regulated areas. This shift can harm financial stability. We’re making necessary adjustments to tackle this challenge.
Recent proposals include recalibrating the community bank leverage ratio and revisiting other regulatory ratings. By reducing the minimum capital for community banks, we hope to provide them with more flexibility to thrive.
Updates on Examination Procedures
We’re also refining our examination processes. It’s important that these evaluations focus on significant financial risks—not just checking off boxes. More nuanced approaches to risk that take into account a bank’s unique characteristics could lead to better, fairer assessment standards.
We’re aware that the current examination reports can significantly influence a bank’s operations. These evaluations guide how banks respond to identified issues, shaping their reputations and future opportunities.
A better approach involves refining how we collect data from banks. Community banks, in particular, face unnecessary burdens with extensive reporting requirements. We’re committed to improving this process, ensuring we gather the most useful information without overwhelming them.
Emphasizing Transparency
Transparency is vital in regulation. We need to clarify supervisory expectations, just as we do with regulatory requirements. We’re now releasing internal manuals, which can shed light on our processes and improve accountability.
There should be channels for information sharing, especially around fraud prevention and cybersecurity. Many potential benefits can be lost due to restrictive information-sharing rules.
Looking Ahead
As we continue to evolve our regulatory framework, I’m eager for feedback from stakeholders. Conversations like this are crucial for shaping a framework that truly benefits all banks, especially community ones.
Thank you for allowing me to share these insights today. Let’s keep the dialogue going to enhance our banking system together.
