Bowman details Federal Reserve's path to modernizing bank supervision and regulation
Federal Reserve Vice Chair for Supervision Michelle W Bowman outlined a comprehensive approach to modernizing bank supervision and regulation. She emphasized tailoring approaches, refocusing on material financial risks, and enhancing transparency in processes.
Refocusing on material financial risks
Bowman emphasized a comprehensive approach to pragmatic supervision, prioritizing tailoring to unique bank profiles, refocusing on early detection and remediation of material financial risks, and enhancing transparency.
She highlighted lessons from the Silicon Valley Bank failure, which exposed flaws in prior unfocused supervisory activities that overlooked severe interest-rate and liquidity risks.
In response, the Federal Reserve published supervisory operating principles in October 2025 to enhance transparency and accountability, directing staff to identify and require early remediation of material financial risks.
Additionally, changes to the LFI ratings framework ensure "well-managed" status reflects overall risk, rather than disproportionately weighting a single component.
Targeting regulatory burden and future reforms
Bowman detailed the elimination of "reputational risk" from the supervisory process, arguing it was misused for politically disfavored activities.
She also rescinded climate guidance, stating it diverted supervisory resources from material financial risks.
Regulatory improvements include recalibrating the Community Bank Leverage Ratio (CBLR) from 9 percent to the statutory minimum of 8 percent, and modifying the enhanced Supplementary Leverage Ratio (eSLR) to its traditional backstop role.
Future proposals will define "unsafe and unsound" practices and update asset thresholds for bank categorization by indexing them to nominal GDP.