Fed Governor Michelle Bowman on Debanking, Regulation, and Banking Stability

Role of Vice Chair for Supervision

• 🎯 The role of Vice Chair for Supervision was established by the Dodd-Frank statute after the financial crisis to oversee the supervision and regulation of the banking system.
• 💡 Governor Bowman is the third person to hold this position, focusing on moving forward with various supervisory and regulatory opportunities.

Addressing Debanking and Reputational Risk

• 🚫 Bowman rescinded previous Fed guidance and supervisory materials referencing reputational risk to ensure banks do not discriminate against customers based on their business model or political views, provided they are engaged in legal activity.
• 💬 She acknowledges that debanking can be a sensitive issue, often occurring under confidential supervisory information, but emphasizes the Fed's focus on preventing it.
• 🗣️ Bowman actively engages with bankers to stay informed about potential issues and encourages reporting of any instances of improper debanking.

Digital Assets and Banking

• 🏦 The Fed has disbanded its novel supervision group, which focused on innovation and digital assets, integrating its learnings into reserve bank examination teams.
• ✅ This move supports the integration of digital assets into the banking system, aligning with Congressional support for such activities and the development of frameworks for their permissibility.

Capital Framework and Regulatory Proposals

• 📊 Bowman is working on all four pillars of the Fed's capital framework: the enhanced supplementary leverage ratio (ESLR), stressed capital buffer, GUI surcharge, and Basel 3 proposal.
• 📈 The ESLR proposal aims to ensure it acts as a backstop rather than a binding constraint, allowing banks flexibility in capital allocation and preventing disincentivization of Treasury market intermediation.
• 🔍 The large financial institution rating system review, including the CAMELS framework, aims to rationalize rating systems, grounding them in material financial risks and avoiding downgrades based on non-material issues.
• 🌍 The Fed is working to align its Basel 3 implementation with the original 2017 agreement and global standards, aiming for comprehensive proposals early next year.

Dual Banking System and Regulatory Coordination

• ⚖️ Bowman advocates for maintaining the dual banking system's oversight capabilities, ensuring a rational framework across the FDIC, Federal Reserve, and state banking commissions to prevent regulatory arbitrage.
• 🤝 She emphasizes close collaboration with Congress to ensure they understand the Fed's focus and actions supporting inter-agency efforts.
• 🎤 Bowman is committed to her current role, focusing on a significant agenda including check fraud, payments fraud, the SLR proposal, and the LFI rating system, prioritizing material financial risk.