Senate Confirms Fed Governor Bowman as Vice Chair for Supervision

The confirmation of Ms. Bowman as Vice Chair for Supervision will almost certainly inaugurate a marked change in prudential regulatory policy approach when compared to the approach taken by former Vice Chair Barr.

On bank capital regulation in particular, Ms. Bowman has been critical of the federal banking regulators' July 2023 Basel III Endgame proposal. Ms. Bowman's comments in her January 2024 speech on the matter hint at what the new Vice Chair for Supervision may advocate regarding re-proposal of the Basel III Endgame.

There, Ms. Bowman proposed what she called a "path forward" on bank capital reform, arguing that the Basel III Endgame proposal was inappropriately calibrated and "could result in significant harm to the U.S. economy through the impact on U.S. businesses, while failing to achieve the intended goals of improving safety and soundness and promoting financial stability." Among other things, Ms. Bowman suggested greater tailoring of individual components of bank capital requirements through "splitting out" the market risk and credit valuation adjustment requirements, credit and operational risk requirements, and revised treatment of AOCI, and applying such requirements in a more "granular" manner.

Consistent with recent comments from Treasury Secretary Bessent regarding upcoming reform of the supplementary leverage ratio with respect to banks' holdings of U.S. Treasuries, in her January 2024 speech Ms. Bowman also identified the enhanced supplementary leverage ratio applicable to G-SIBs as requiring reform. She noted that the "eSLR can disrupt banks' ability to engage in Treasury market intermediation, which we saw occur in the early days of market stress during the pandemic."

Ultimately, with Ms. Bowman's confirmation, market participants may be able to expect much more "capital neutrality," tailoring, and transparency in a revised Basel III Endgame proposal.

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