In a January speech, Federal Reserve Governor Michelle Bowman offered insights into bank regulators’ focus for 2024 following a turbulent 2023. MBK Search looked through the speech and pulled out these key takeaways.
Prioritizing Safety and Soundness
First, Bowman argues that safety and soundness should again become the foremost supervisory emphasis. Well-managed interest rate and concentration risks posed the core vulnerabilities behind 2023 bank stresses.
Yet Bowman claims supervision has distracted towards qualitative issues peripheral to financial fundamentals. She worries that new guidance on third-party relationships and climate risk exemplifies this diversion from core stability risks requiring immediate diligence.
Instead, Bowman wants supervision renewed around longstanding balance sheet threats. This requires structural changes rather than just rhetorical priorities if 2023 regulatory oversights are to be avoided.
Tailoring Regulations to Business Reality
Second, Bowman supports re-committing to Congressional tailoring mandates whereby regulation matches actual institutional complexity. She says graduated standards based on size and activities have proven effective.
However, the governor says recent reform proposals have been overly broad and could be more suited for regional and community banks. She highlights capital rule changes projected to create consolidation incentives and asset-size cliff effects.
To Bowman, appropriately calibrated requirements that distinguish business models are essential. ‘Mindlessly’ pushing complex regulations downmarket risks unhealthy industry impacts while failing to address sophisticated risk factors.
Increasing Transparency Around Standards
Finally, Bowman wants to resolve 2024 supervisory enhancements through transparent expectations, not surprise-examined actions. She claims opacity reduces certainty, disrupts strategic planning, and imposes diversionary burdens.
Clear standards allow banks to understand and meet oversight goals. However, Bowman received complaints of excessive evaluations detached from actual small bank risks. She posits that the stresses may have fueled detached shifts in assessments rather than purposeful changes.
Ultimately, Bowman emphasizes humility and courage to acknowledge consequences, change course when necessary, and uphold system stability and national economic health. Banks require discernable regulations to manage prudently without examining minds.
Bowman lays out a 2024 vision balancing oversight rigor with business realities by pursuing these resolutions. But meaningful impact depends on embedding constraints against regulatory overreach while ensuring watched risks don’t slip through visible cracks.
