Governor Michelle W. Bowman, a member of the Board of Governors of the Federal Reserve System, emphasized the need for a responsive and responsible regulatory framework in the banking sector. Speaking at an event in Salzburg, she discussed the importance of adapting to changing economic conditions and emerging risks while ensuring transparency and open debate in regulatory adjustments.

Governor Bowman highlighted recent stress in the banking system and the failures of certain banks, highlighting deficiencies in risk management practices and supervisory priorities. To address these issues, he proposed an independent third-party review to fully analyze the factors that contributed to the recent bank failures and stress on the banking system. The aim is to provide a comprehensive understanding of the facts and to improve the fairness and effectiveness of future reviews.

In addition, Governor Bowman emphasized the need for oversight and regulation, focusing on the main banking risks, such as liquidity and interest rate risk. While he supported certain reforms, he expressed concern that higher capital requirements could hinder bank lending and competition without addressing the underlying effectiveness of supervision. She debunked the notion that the recent banking stress was the result of a less assertive supervisory approach, highlighting the strength and resilience of the current banking system compared to the pre-2008 financial crisis.

Governor Bowman called for improvements in supervision, transparency in supervisory expectations, and a clear regulatory approach to novel banking activities, including including banking as a service and digital assets. He stressed the importance of assessing the consequences of regulatory reviews and considering the impact on the broader financial system. While he supported the final Basel III reforms, he stressed the need for public comment and transparency in the rulemaking process.

Governor Bowman also urged lawmakers to consider the impact of capital requirements on international competition and the shadow banking system. Higher capital requirements could create a disadvantage for regulated banks compared to non-bank competitors, which could shift financial activity outside of the regulated banking system.