On May 19, 2023, Federal Reserve Board Governor Michelle W. Bowman was invited to speak at the Texas Bankers Association Annual Convention where she talked about the considerations for revisions to the bank regulatory framework. Bowman was a former banker, former state bank commissioner, and a member of the Federal Reserve Board. Governor Bowman’s speech centered on the critical role of bankers in facilitating a strong economy.
The following are the key points from Bowman’s speech:
Tailoring is a critical aspect of the federal regulatory and supervisory framework. Risk-based supervision is itself a form of tailoring and when implemented effectively, it focuses supervisory attention on areas that pose the greatest risk.
As regulators consider the appropriate response to the recent bank failures, feedback from a variety of internal and external viewpoints must be considered to identify what went wrong. Bowman believes that engaging an independent third party to analyze the events surrounding the failure of these banks is one of the most effective steps the Federal Reserve could take to fully understand what led to the failures.
Supervisors must do a better job of focusing on and identifying key issues and risks to ensure they can be promptly remediated.
Using the recent bank failures as a pretext to push for other, unrelated changes to bank regulation should be avoided.
There is a need for a supervisory system that focuses appropriate attention on the traditional risks that are inherent to the business of banking: credit, liquidity, concentration, and interest rate risk.
Transparency can help promote maintain a focus on traditional risks, while enabling banks to innovate in a safe and sound manner.
Bankers are encouraged to consider creating a plan to handle liquidity needs during times of unexpected stress and then test the ability to execute the plans.
Radical reform of the bank regulatory framework—as opposed to targeted changes to address identified root causes of banking system stress—is incompatible with the fundamental strength of the banking system.
Bowman concluded by stressing that it is imperative for policymakers to preserve a framework that supports a diverse and dynamic banking sector, with banks of all sizes that serve the needs of their unique customers wherever they are located.
Bowman’s full speech can be found here.