Fed Governor Bowman on Bank Capital Rules, Debanking, and Crypto

Role of the Vice Chair for Supervision

• 🎯 The Vice Chair for Supervision role, created by Dodd-Frank after the financial crisis, oversees the supervision and regulation of the banking system.
• 💡 Governor Bowman is focused on her current regulatory agenda, including completing big-bank capital proposals.

Addressing Debanking and Reputational Risk

• 🚫 Bowman rescinded previous guidance on reputational risk to ensure banks do not discriminate against customers based on business model or political views, as per a presidential executive order.
• 💬 The goal is to ensure banks serve any legally operating customer and that regulatory examinations do not include reputational risk.
• ⚠️ While difficult to track due to confidential supervisory information, the focus remains on preventing reputational risk from influencing banking decisions.

Crypto and Digital Assets

• 🚀 The Fed is integrating learnings from its disbanded novel supervision group into Reserve Bank examination teams to understand digital assets and innovation.
• ✅ Congress has supported the Genius Act, indicating that activities related to digital assets are acceptable and legal, with frameworks being developed for their integration into the banking system.

Capital Framework and Leverage Ratio

• 📊 Bowman is working on all four pillars of the capital framework: stress capital buffer, G-SAP surcharge, Basel III proposal, and the supplemental leverage ratio (SLR).
• 💡 The SLR proposal aims to ensure it acts as a backstop rather than a binding constraint, allowing banks flexibility in allocating capital and intermediating Treasury markets.
• ⏳ The SLR proposal has been published, and the Fed is awaiting the comment period to finalize it, ideally in conjunction with the other three pillars.

Rating Systems and Basel III Implementation

• 🔍 The Fed is reviewing its rating systems, including the CAMELS framework, to ensure they are rationalized and grounded in material financial risks.
• 🛠️ The large bank rating proposal would require deficiencies in two different buckets (e.g., capital, liquidity, governance) for a downgrade, rather than just one.
• 🌍 The US is reviewing Basel III implementation to align with international standards, with proposals expected to be released early next year, likely with Basel III being the last piece.

Regulatory Structure and Future Outlook

• 🏦 Bowman emphasizes the importance of maintaining a dual banking system with a rational framework across regulators to prevent arbitrage.
• 🤝 The Fed will work closely with Congress to ensure they understand the agency's focus and supportive efforts.
• 🌟 Bowman is committed to her current role and the significant agenda ahead, focusing on material financial risks and completing capital proposals.