In a speech delivered at a recent conference hosted by the US Federal Reserve Banks of Dallas and Atlanta, Federal Reserve Board Governor Michelle W. Bowman addressed how the regulatory and supervisory framework should be reformed following the bank failures of 2023.
She stressed the importance of understanding the underlying causes of bank failures and addressing the fundamental issues. "Last year's banking stress highlighted the need for improvements in bank supervision,” Bowman argued. “An important step in the reform agenda—and one of the most effective reforms to build resilience against future banking stress—is to improve the prioritization of safety and soundness in the examination process,” she added.
While much focus has been put on enacting sweeping regulatory reform since the bank failures, Bowman argued that the most effective regulatory tool is supervision. "Effective supervision requires transparency in expectations and an approach that incorporates remediating deficiencies as a part of meeting those expectations," she said.
Bowman acknowledged the significant transformation of the bank regulatory system since the Dodd-Frank Act, which increased liquidity and bank capital, stress testing, and resolution planning requirements. Resolving the shortcomings at the heart of the 2023 bank failures will necessitate a clear-eyed assessment of regulatory reforms, focusing on changes that are efficient and durable over the long run.
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