FRB Governor Calls for "Impartial and Independent" Review of Bank Regulatory and Supervisory Framework

Federal Reserve Board ("FRB") Governor Michelle W. Bowman argued for an "impartial and independent" review of the current regulatory and supervisory framework to ensure that any potential reforms emanating from the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank take into account unintended consequences.

In remarks at the Salzburg Global Seminar on Global Turbulence and Financial Resilience, Governor Bowman stated that "it is abundantly clear that regulatory and supervisory reform is on the way," and that "reform efforts should be both informed by an impartial and independent review of what led to the failures."

Governor Bowman identified areas for review, and included relevant concerns to be addressed:

• Responsive Regulation and Supervision.
  • Recent bank failures and stress exposed deficiencies in risk management practices and supervisory priorities.
  • Independent third-party analysis is crucial to fully understand the factors contributing to these failures and ensure impartiality and independence.
• Independent Review.
  • Additional independent reviews are needed to provide a comprehensive understanding of recent bank failures and inform necessary changes to supervision, regulation and emergency authorities.
• Supervisory Reform.
  • Proposals for supervisory reform require additional review, analysis and discussion.
  • Transparency in supervision should not be "mistaken for leniency" and improvements are needed in communication, expectations regarding enforcement, and focus on relevant banking risks.
• Responsible Reform of the Regulatory Framework.
  • Reforms should reflect "transparency, accountability, efficiency and due process."
  • Consideration of consequences is vital, particularly in evaluating revisions to capital, liquidity, stress testing and supervisory approaches.
• Capital Standards and International Consistency.
  • Implementing final Basel III reforms should consider the tradeoff between higher capital and decreased credit availability.
  • Deviations in capital standards across jurisdictions should be mindful of international consistency and parity to avoid detrimental consequences.
• Nonbank Financial Services Firms.
  • Rising bank capital requirements may further advantage non-bank competitors and push financial activity out of the regulated banking system.
  • Connections between banks and non-banks should be examined to ensure a cost-effective and resilient banking system.

Further, Governor Bowman emphasized that the regulators should consider the "real-world" consequences of policy changes and strive for international consistency while recognizing the impact on non-bank financial services firms.