Financial regulations proposed by Bowman potentially pose risks to financial stability, according to the statement.
Michelle Bowman Advocates for Stricter Bank Supervision and Regulation
Michelle Bowman, Federal Reserve Governor, spoke at the Marrakech Economic Festival in Morocco, focusing on the importance of effective bank supervision and regulation. Bowman emphasized the need for stricter capital requirements and proactive supervision to address core safety and soundness issues in U.S. banks.
Under the new proposed rule, banks with more than $100 million in assets will face stricter capital requirements. According to Bowman, capital alone cannot substitute for sound risk management and supervision. She highlighted the need for supervision to proactively identify and escalate issues based on banks' risk exposures and conditions.
Bowman expressed her preference for stricter bank supervision, citing recent bank failures as evidence of deficiencies in the current system. These failures, she noted, have heightened financial stability risks.
One concern Bowman identified is potential declines in commercial real estate values, which could weaken related loan quality. She also pointed out potential vulnerabilities posed by large nonbank financial institutions, including elevated hedge fund leverage and run risks in certain funds.
Bowman reiterated her stance on proposed regulatory capital requirement changes, emphasizing the need for regulations to account for incentive effects and consequences. She warned of potential erosion of loan quality and earnings due to rising interest rates.
Regulatory reform, Bowman argued, can pose significant financial stability risks. She noted that inhibiting innovation in the banking sector could lead to less transparency and potentially greater financial stability risk. To balance this, Bowman suggested expanding the regulatory boundary and addressing regulatory gaps, allowing innovation in the banking space while enforcing existing regulation.
In response to the proposed changes, the U.S. Treasury Secretary Janet Yellen criticized the plan to revise the Federal Reserve's capital requirements again in June 2023. Meanwhile, Bowman voted against the July proposal due to insufficient proof of benefits.
Martin Gruenberg, the Federal Deposit Insurance Corp. chair, stated that maintaining Basel III standards could have prevented the Silicon Valley Bank's liquidity run. Bowman's stance on stricter bank supervision and regulation seems to align with this view, as she emphasized the need for supervisors to be adequately equipped to maintain rigorous oversight as regulations become more complex.
In conclusion, Michelle Bowman's speech at the Marrakech Economic Festival underscored the importance of stricter bank supervision and regulation, particularly in light of recent bank failures and the need to address potential vulnerabilities in the banking sector.
