Banking and Finance Law Daily Wrap Up, PRUDENTIAL REGULATION—Bowman outlines Fed supervision agenda, (Feb 19, 2026)

By Shashi Kant, BALLB, LL.M.

Bowman previews supervisory shifts toward financial risk prioritization, capital framework revisions, and review of outstanding safety-and-soundness findings.

In opening remarks delivered by pre-recorded video at the Federal Reserve Bank of Atlanta’s 2026 Banking Outlook Conference, the Fed Vice Chair for Supervision Michelle W. Bowman described supervisory and regulatory work “on the horizon,” including efforts focused on tailoring for community banks, changes to community bank capital frameworks, updates to large-bank capital rules, and a review of outstanding safety-and-soundness Matters Requiring Attention.

Role and approach. In her remarks, Bowman noted she has served as Vice Chair for Supervision since June of the prior year and noted she is the first governor to serve in the role designated for someone with community banking experience. She said an “important principle” guiding the Fed’s work is regulatory and supervisory tailoring, which she described as adjusting the approach to the risk banks of different size and complexity pose to the financial system, as well as to an institution’s risk profile.

Community bank initiatives. Bowman said the Fed is reviewing merger-and-acquisition and de novo chartering processes for community banks, including streamlining applications and updating the competitive analysis framework “to better assess competition among small banks.” She also said the Fed is reviewing comments on proposed changes to the community bank leverage ratio that would provide “greater flexibility” while maintaining “strict capital standards nearly double the minimum capital requirements,” and she said the Fed will “soon revisit” the mutual bank capital framework.

Large bank capital framework. Bowman said the Fed is “moderniz[ing] regulations for large banks” by revising what she called four pillars of the capital framework: stress testing, the supplementary leverage ratio, Basel III, and the G-SIB surcharge.

Stress testing. Bowman referenced a recent proposal that would disclose stress test models, the scenario design framework, and 2026 scenarios, and she said the goal is to reduce volatility, balance model robustness with transparency, and ensure significant future changes receive public input. She also said the Fed published final 2026 scenarios earlier in the month.

Supplementary leverage ratio. Bowman said that “last fall,” the Fed, OCC, and FDIC finalized changes to the enhanced SLR for U.S. G-SIBs. She said the changes are intended to keep leverage requirements as a backstop to risk-based requirements and to prevent the leverage ratio from impeding “low-risk activities like holding Treasury securities” because of a binding constraint.

Basel III. Bowman stated that the Fed, FDIC, and OCC are advancing U.S. Basel III implementation and that finalizing Basel III would reduce uncertainty and provide clarity for bank capital standards. She said the approach includes a “bottom-up” methodology rather than a “reverse engineered predetermined outcome,” and she referenced adjustments to the capital treatment of mortgages and mortgage servicing, stating that the existing approach has reduced bank participation in mortgage lending and limited access to credit from banks.

G-SIB surcharge. Bowman said the Fed is refining the G-SIB surcharge framework in coordination with the Basel proposal and other capital reforms, and she said the surcharge must balance safety and soundness with economic growth.

Supervisory priorities and MRAs. Turning to supervision, Bowman said that in October, “for the first time”, the Fed published supervisory operating principles that direct examiners to prioritize “core and material financial risks to safety and soundness.” She said the Fed will continue all examination programs, but when identifying and prioritizing risks it will focus on those that can lead to deterioration in financial condition or failure, rather than paying “excessive attention” to processes, procedures, and documentation. Bowman characterized the shift as moving from “siloed compliance exercises” to “unified, forward-looking risk assessments,” and she said examiners should focus on vulnerabilities that could lead to failure rather than whether policies are “properly documented.” She said MRAs too often cite issues such as documentation gaps, committee attendance, or immaterial limit exceedances, and she said the Fed has begun asking examiners to focus on scenarios that could cause a strategy to fail and preparedness for those scenarios.

Bowman said the Fed recently notified state member banks and holding companies that it has begun “a comprehensive review” of all outstanding safety-and-soundness MRAs. She said that where MRAs “do not meet standards,” the Fed will downgrade them to “nonbinding supervisory observations,” and she said the Fed expects to complete the review by the end of June.

Nonfinancial risk. Bowman said the focus on core and material financial risks “does not mean neglecting nonfinancial risk,” and she identified cybersecurity as a “top priority.” She said the Fed will continue to examine for strong risk management and issue findings where appropriate.

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