Federal Reserve Governor Michelle Bowman repeated her call for a third-party probe into the failure of Silicon Valley Bank and pushed back against calls for increased regulation on smaller lenders in response to the recent banking strains.
(Bloomberg) — Federal Reserve Governor Michelle Bowman repeated her call for a third-party probe into the failure of Silicon Valley Bank and pushed back against calls for increased regulation on smaller lenders in response to the recent banking strains.
“The view that we extend the reach of overly complex and outsized regulatory requirements to banks that are smaller and less complex ignores some likely results—doing so will lead to bank consolidation, and will potentially push banking activities outside of the regulated banking system,” Bowman said Friday in San Antonio at a Texas Bankers Association conference.
“This is surely not the outcome that supporters of the 2008 financial crisis reforms were seeking.”
In a broad speech touching on many of the regulatory and supervisory proposals that have been called for in the wake of the collapse of SVB and three other regional lenders, Bowman stressed the importance of maintaining a tailored approach to bank oversight to avoid imposing unnecessary burdens.
‘Radical Reform’
Bowman, the community bank representative on the Fed’s Board of Governors appointed by former President Donald Trump, said that “radical reform of the bank regulatory framework —as opposed to targeted changes to address identified root causes of banking system stress — is incompatible with the fundamental strength of the banking system.”
Instead, changes to how banks are regulated should be targeted and address specific problems that have arisen, she said.
One such reform could come to deposit insurance, Bowman said.
Earlier this month, the Federal Deposit Insurance Corp. signaled its support for boosting limits on deposit insurance in some instances. The FDIC said it supported switching to a “targeted coverage” approach, where business accounts get more coverage than the current $250,000 cap.
The regulator said the move would be the best option for financial stability. However, the FDIC also said that such a change would require lawmaker action and prospects for that in a divided Congress remain unclear.
In repeating her call for a third-party investigation into the events surrounding the failure of SVB, Bowman said it would be “the next logical step in holding ourselves accountable.”
She urged that such a review cover a broader period of time, including the events of the weekend after SVB failed, and a broader range of topics “including operations issues, if any, with discount window lending, Fedwire services, and with the transfer of collateral from the Federal Home Loan Banks.”
Bowman also pushed back against the idea that regulatory asset caps should be lifted. Some lawmakers and industry watchers have said a lifting of these caps in 2018 allowed banks like SVB to grow in size quickly without facing more oversight.
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