Bowman advocates for risk-aligned bank capital rules

Bowman stated that the Federal Reserve, in coordination with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, will propose rules to implement the final phase of Basel III. These changes aim to eliminate overlapping requirements, right-size calibrations to actual risk, and comprehensively address long-standing gaps, resulting in more efficient regulation.

The approach evaluates each requirement on its merits, ensuring proper calibration and avoiding unintended outcomes.

The modernization effort focuses on four pillars for the largest banks: stress testing, the supplementary leverage ratio (eSLR), risk-based capital requirements under Basel III, and the G-SIB surcharge.

The goal is to preserve safety and soundness while better positioning banks to support economic growth and provide credit to households and businesses.

Bowman highlighted that while post-2008 reforms substantially increased bank capital, experience shows requirements that overly calibrate low-risk activities produce unintended consequences.

These include constraining credit availability, pushing activity into the less-regulated nonbank sector, and increasing complexity without meaningfully enhancing safety and soundness.

She cited the global systemically important bank (G-SIB) surcharge as an example, which has increased in a way that has become disassociated from actual risk.

The new proposals aim to reduce incentives for activities like mortgage origination and lending to businesses to migrate outside the regulated banking sector, ensuring robust capital standards for all U.S. banks.