Governor Bowman Unveils Innovative Approaches to Supervision and Regulation: A New Vision for Effective Governance

I’m excited to share my first comments as the Federal Reserve Board’s Vice Chair for Supervision. Today, I’ll outline my approach to guiding the Fed’s Division of Supervision and Regulation. Our main goal? To ensure the U.S. banking system stays safe and sound.

At the heart of my approach is a down-to-earth mindset. We begin by identifying problems and then figuring out practical solutions. If reform is needed, we analyze its potential outcomes and consider alternative strategies that may yield better results.

Here’s how we’ll improve supervision and regulation going forward:

1. Focusing on Real Risks: It’s essential to zero in on significant financial risks that could jeopardize a bank’s stability. We shouldn’t get lost in minor procedural issues. The aim is to catch serious risks early and take action to address them.

2. Tailoring Regulations: Not all banks are the same; they vary in size and complexity. We need to customize our regulatory approach, especially for community banks, to shield them from standards meant for larger institutions. The current definition of a community bank, capped at $10 billion, may actually create burdens for many smaller banks trying to serve their communities.

3. Streamlining Processes: The applications for new banks or mergers should be clearer and more efficient. This means we must communicate better about what information is needed and provide clear timelines for decisions.

4. Reevaluating Ratings: We need to make sure that ratings reflect a bank’s true financial condition. There’s been a disconnect lately, where many institutions are rated poorly despite meeting capital and liquidity expectations. We must address this to better reflect a bank’s performance.

5. Enhancing Examiner Training: Our examiners play a vital role in maintaining a safe banking environment. It’s crucial that all individuals involved in supervision understand the standards and expectations thoroughly. Investing in their training is essential for effective oversight, especially as we face an aging workforce.

6. Reviewing Regulations: Many regulations stemming from the 2008 financial crisis need re-evaluation. Some rules haven’t been updated in over 20 years. We must balance safety with the ability of banks to grow and serve their customers.

7. Capital Framework Assessment: Capital requirements are vital to banking stability. However, we often take a narrow approach, examining rules in isolation. A thorough evaluation of the overall capital framework is necessary to ensure it meets current risks effectively.

In light of these points, it’s clear that adapting our regulatory framework is critical for the financial system’s health. An ongoing review of regulations, along with a commitment to transparency, will help encourage growth and innovation while keeping safety as a priority.

To foster meaningful discussion, we’ll be hosting a conference later this year that will bring together bankers and experts to tackle these issues. The aim is a banking system that’s not only resilient but also supports economic growth effectively.

Staying proactive in this ever-evolving landscape is key to our mission. By refining our strategies and listening to feedback, we can create a banking system that benefits everyone.

For more information about regulations and banking fundamentals, you can access resources from the Federal Reserve.

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