Bowman’s Past Remarks Signal ‘Tailored’ Bank Supervision Priorities at the Fed

To get a sense of where banking regulation may be headed, Federal Reserve Governor Michelle Bowman’s comments and priorities laid out in remarks and speeches offer some insight.

President Donald Trump announced last week that he picked Bowman to serve as vice chair for supervision at the central bank. She succeeds Michael Barr in that role should she be confirmed by the Senate (which seems likely given the Senate’s Republican majority), and has been on the central bank’s Board of Governors since 2018.

The General Approach to Regulations

In a January speech, Bowman told the California Bankers Association: “This year will see a transition in leadership at the banking agencies, and I expect that this will translate into a shift in priorities and approach.”

“Public debates about the bank regulatory framework routinely focus on whether regulators are being ‘hard enough’ on banks, or whether the framework is too ‘lenient,’” she said.

In this and other speeches, she has advocated for “regulatory tailoring,” a shift from the movement after Silicon Valley Bank’s failure where “we saw a wide range of regulatory proposals. These have included substantial increases in bank capital requirements and pushing down global systemically important bank and large bank requirements to much smaller firms.”

Those proposals have moved beyond the scope of the actual problems identified in the wake of the SVB upheaval.

“Tailoring can help ensure regulators focus on the most critical risks over time and avoid the over-allocation of resources or imposition of unnecessary costs on the banking system,” Bowman said in the January speech.

The sweeping capital requirements could lead to “substantial industry consolidation,” she said, and a more transparent process will prove “especially important as digital assets and artificial intelligence are becoming increasingly more prevalent in the financial system.”

There’s some evidence that Bowman would look to streamline the banking application process (and the allowance of banks to expand), stating in Friday (March 21) remarks tied to a California bank’s setting up a branch in New Jersey that an adverse comment during the commentary period led to months of delay.

“This case is emblematic of the current deficient approach to processing applications in cases where a member of the public has made an adverse comment, particularly when the recent supervisory record addresses the concerns raised and is consistent with approval,” she said. “It is time for the board to revisit its current approach to adverse comments.”

An Eye on Frameworks

In an Oct. 23 speech at a FinTech conference, Bowman weighed in on those digital assets, innovations and FinTechs. She pointed to a need to “prioritize how we integrate innovation as we revise or enhance regulatory frameworks.”

As to the contours of that regulation, she posed these questions in a June 17 speech: “Transformational technology requires clear, consistent and transparent guardrails and expectations to govern the activities that are allowed into the regulated financial system. Where current regulation does not contemplate a new activity, should it be acceptable for financial agencies to regulate the activity through supervision and enforcement alone? Or should congressional action address the treatment of these activities in the financial system?”

Moving Away From ‘More Is Better’ Regulation

“Often regulators take a ‘more is better’ approach to regulation and guidance,” she said Feb. 5 in remarks at the Kansas Bankers Association Government Relations Conference. “Over the past several years, the banking industry has faced an onslaught of proposed and final regulations and guidance, materials that require a significant time commitment to review, to comment on, and to implement.”

“Fundamentally though, this ‘more is better’ approach fails to address the core criticisms, including both an overall lack of transparency, and the perception (and perhaps reality?) that regulators have been overly hostile to innovation, including banks’ involvement in any capacity with digital assets, the use of artificial intelligence, and the availability of new technologies and providers to access the payment system,” she said.