During a recent speech, Federal Reserve Board Governor Michelle Bowman addressed new approaches toward bank regulatory policies. These policies seem to adopt a more conciliatory tone towards banks. Below are the key points.
- Transition in Leadership: This year will see a transition in leadership at the banking agencies, which is expected to result in a shift in priorities and approach.
- Collaborative Focus: By working collaboratively to focus on statutory mandates, banking agencies can improve how they fulfill their responsibilities in a fair, efficient, and accountable way.
- Pragmatic Policymaking: Adopting a more pragmatic approach to policymaking, one that imposes discipline in the exercise of the extensive powers and important responsibilities granted by Congress, would be most effective.
- Public Debates: Public debates about the bank regulatory framework often focus on whether regulators are being “hard enough” on banks or whether the framework is too “lenient.” This binary approach ignores the known tradeoffs in any regulatory action.
- Shared Goals: Bank regulation and supervision need not be an adversarial system. Banks and regulators often have the shared goal of a banking system that is safe, sound, and effective.
- Statutory Objectives: Regulators must identify the objectives they are trying to achieve. The Federal Reserve has the important responsibility of promoting the safe and sound operation of individual banks and the stability of the broader financial system.
- Balancing Objectives: Promoting safety and soundness, such as by raising capital requirements, has an effect on the aggregate lending capacity of the banking system and the availability of credit. Regulators must understand and appreciate these tradeoffs.
- Future of Banking: The future of banking in the United States is optimistic. Banking regulators can support the banking system by adopting a more pragmatic approach, focusing on prioritizing safety and soundness, renewing commitment to regulatory tailoring, and increasing transparency.
The full speech can be found online here:
https://www.federalreserve.gov/newsevents/speech/bowman20250109a.htm
