FRB Highlights Broad Reforms to Bank Oversight

Vice Chair for Supervision Michelle Bowman testified that the Federal Reserve has recalibrated a range of bank capital and supervisory requirements after review of outstanding supervisory matters.

In testimony before the House Financial Services Committee, Ms. Bowman reported that the Fed is overhauling the decades-old CAMELS rating framework (largely unchanged since 1979) replacing subjective assessments with clearer, more objective metrics. She emphasized that supervision should focus on material financial risks, not process-driven deficiencies. (See previous coverage.)

On capital reform Ms. Bowman outlined broader capital modernization proposals designed to reduce redundancy and encourage mortgage lending. She pointed to the steep decline in bank-originated mortgages - from roughly 60% in 2008 to about 35% in 2023 - as a direct consequence of miscalibrated risk weights, and framed the proposed reforms as a path to bringing that business back into the regulated banking sector. She said the proposals clarify requirements, align them with actual risks, reduce overlaps and duplications, and support the extension of credit to the U.S. economy while preserving strong capital levels and safety and soundness.

On community banking, she highlighted that federal banking regulators finalized changes to the community bank leverage ratio ("CBLR"), setting it at eight percent and extending the grace period to return to compliance from two to four quarters. She said the changes would ensure "the simplified framework is accessible to more community banks, and that it works as Congress intended."

On innovation, she reported that the agencies (i) updated the capital treatment for tokenized securities to be technology-neutral, (ii) revised model risk management guidance to adopt a principles and risk-based approach, and (iii) replaced an overly restrictive policy statement with one that encourages appropriate adoption of innovation. She said the Fed is developing a stablecoin regulatory framework under the GENIUS Act.