Bowman outlines tailored approach to bank supervision and regulation
Federal Reserve Vice Chair for Supervision Michelle W. Bowman outlined a comprehensive approach to modernizing bank supervision and regulation. Speaking at the California Bankers Association Bank Presidents Seminar, she emphasized tailoring, early detection of material financial risks, and enhanced transparency.
Pragmatic shifts in supervisory oversight
Bowman detailed a pragmatic approach to supervision, emphasizing early detection and remediation of material financial risks.
This includes the publication of supervisory operating principles in October 2025, designed to enhance transparency and accountability, learning from the Silicon Valley Bank failure.
The Fed also modified the LFI ratings framework and eliminated "reputational risk" from the supervisory process, which was deemed imprecise.
Furthermore, climate guidance that diverted resources from core safety and soundness risks was rescinded, ensuring supervision focuses on essential financial stability objectives.
Indexing thresholds and clarifying practices
Looking ahead, Bowman announced upcoming regulatory proposals to define "unsafe and unsound" practices and formally remove "reputation risk.
" A key initiative involves updating and indexing asset thresholds, such as the $10 billion community bank definition, to account for economic growth and inflation, potentially using nominal GDP.
This aims to prevent stable banks from facing overly complex regulations due to asset growth alone.
She also advocated for a more nuanced approach to supervisory portfolios, better aligning oversight with the complexity and risk profile of smaller institutions.