Building a Durable Supervisory Framework

In a speech delivered last week, Brandon Milhorn, President and CEO of the Conference of State Bank Supervisors (CSBS), argued that US financial regulation stands at a crossroads, and that building a more tailored and durable supervisory framework will require greater calibration and coordination.

Milhorn opened with a historical parallel. In the 1980s, Southern states facing capital drain from large financial centers responded not by competing with one another, but by cooperating through the Southeastern Regional Banking Compact. That spirit of collective action, he argued, is precisely what is needed again today.

At the heart of his remarks was a call for regulatory right-sizing. Community banks, which represent 90% of state-chartered institutions, bear disproportionate compliance costs relative to their size and risk profile, Milhorn argued. He welcomed the federal government’s growing interest in trimming process-heavy supervision, including proposed reforms to the CAMELS rating system and anti-money laundering frameworks.

However, Milhorn stressed the importance of creating a stable and sustainable system. “We have a unique opportunity to reset the regulatory and supervisory balance for our nation’s banks,” he said. “That is why, as we right-size regulation and supervision of financial institutions, we must guard against the tendency to over-correct. As we know from high school physics, that movement leads to an equal reaction in the opposite direction.”