Fed’s Bowman Proposes Easing Bank Regulations
Federal Reserve Vice Chair for Supervision Michelle Bowman has signaled a shift toward easing regulatory pressure on banks, advocating for a review of capital requirements and reforms to the oversight of bank mergers and new charters. In remarks delivered at Georgetown University’s Psaros Center for Financial Markets and Policy, Bowman emphasized the need to recalibrate rules that may now be misaligned with current economic realities and financial system structure.
“Our goal should not be to prevent banks from failing or even eliminate the risk that they will. Our goal should be to make banks safe to fail, meaning that they can be allowed to fail without threatening to destabilize the rest of the banking system,” she said.
She specifically criticized the enhanced supplementary leverage ratio (eSLR) as a potential source of market distortion. Originally designed to ensure adequate capital buffers, Bowman argued the ratio now binds too tightly, discouraging low-risk activities such as Treasury market intermediation. “When leverage ratios become the binding capital constraint at an excessive level, they can create market distortions,” she noted.
The Federal Reserve is expected to issue a proposal revisiting eSLR’s original calibration—developed during a time when reserve levels were far lower than today’s—though Bowman cautioned that a broader reexamination of the entire capital framework may be necessary.
To that end, the Fed will host a July conference focused on whether existing capital standards—including the leverage ratio, GSIB surcharge, Basel III reforms, and stress testing—are achieving intended policy outcomes in a coordinated manner.
Bowman also addressed inefficiencies in the bank application process, calling for faster timelines and clearer standards, particularly for new bank formations. “Streamlining the applications for de novo formation, and establishing clearer standards for approval, may encourage more de novo activity,” she said.
Her remarks come amid increasing pressure from the banking industry and lawmakers to scale back regulations viewed as burdensome or outdated, while still maintaining systemic resilience.