Banking and Finance Law Daily Wrap Up, FEDERAL RESERVE SYSTEM—Governor Bowman delivers remarks at Fed conference, (Jul 19, 2024)

By Ursula Furi-Perry, J.D., MBA

Fed governor Bowman discussed liquidity, supervision, and regulatory reform at Dallas research conference.

Michelle W. Bowman, a member of the Board of Governors of the Federal Reserve System, discussed several banking and finance issues at a Dallas, Texas research conference on July 18, 2024. The conference, titled “Exploring Conventional Bank Funding Regimes in an Unconventional World,” was co-sponsored by the Federal Reserve Banks of Dallas and Atlanta.

“My hope is that in discussing these issues we can develop a better and deeper understanding about sources of bank funding, financial stability, and the future of the banking system,” Governor Bowman stated. “This complex set of issues can be open to interpretation, and as a result, can lead policymakers to different policy prescriptions for how to make the banking system more resilient, and the regulatory response to financial stress more effective.”

Bowman began by discussing what she called the “foundational elements that promote accountability in banking regulation,” which she stated should also be the “foundational elements of any reform agenda.” Those elements, she said, include a deep understanding of the banking system, thorough analysis, identifying how elements of the banking system interact and perform over time, and a commitment to take ownership of the issues identified.

Governor Bowman shared her insights on the Fed’s lender of last resort and payments infrastructure, noting that operational readiness must be addressed and that maintenance of existing infrastructures is sometimes overlooked. She mentioned other changes necessary to update payment services, including modernizing the technology banks use to request loans electronically and ensuring that collateral can move freely from the bank or FHLB to the Reserve Bank when needed. Bowman discussed the stigma associated with taking loans from the discount window, stressing the need to explore ways to validate the use of discount window lending in the regulatory framework and the need to address known and identified issues that were exposed during the banking stress in the spring of 2023.

Bowman next discussed supervision reform. “Last year’s banking stress highlighted the need for improvements in bank supervision, with several notable failures to identify and appropriately escalate issues during the examination process,” she stated. “Supervision that is not focused on core risks erodes the resiliency in the banking system. Bank failures and losses to the deposit insurance fund certainly demand attention, review, and accountability, but the underlying issues suggest we need to ensure that supervision works appropriately over time.”

Lastly, Bowman addressed regulatory reform, noting that it’s important carefully assess the need for reform “while maintaining those elements of the bank regulatory framework that have proven durable and successful over time.” Bowman discussed what she called the current “narrow focus” on rulemaking, noting a need to approach the regulatory process “through the most stringent and conservative lens, particularly when it comes to some of the most consequential rulemakings of the last decade.”

RegulatoryActivity: FederalReserveSystem FinancialStability PrudentialRegulation