Bank failures not enough to warrant ‘wholesale revisions’ to bank regulatory framework, Fed governor insists

More shade was cast on new banking regulations Wednesday in the wake of failures of three regional banks last spring by a governor of the Federal Reserve, who had made similar remarks the prior day.

Federal Reserve Gov. Michelle W. Bowman, speaking before the Community Banking Research Conference in St. Louis, insisted that bank failures demand scrutiny, but bank failures alone do not justify wholesale revisions to the bank regulatory framework.

“Before we undertake reforms intended to address issues that led to bank failures, we need to develop a comprehensive understanding not only of those root causes, but also of the costs and unintended consequences of potential reforms,” Bowman – who serves as the community bank representative on the Fed Board – told the group. “Research can protect against over-reactive regulation, especially that which is not efficient, calibrated and tailored to address the actual risks and challenges facing the banking system.”

Bowman said her “insistence” upon being guided by evidence does not imply she is opposed to regulatory reforms. Rather, she said, policymakers should be expected to show their work.

“The banking system is not perfect, and policymakers should continually ask themselves if there are ways to improve regulation and supervision,” Bowman said. “I am always open to considering evidence-based proposals that address known deficiencies and shortcomings in our regulatory and supervisory framework, but any such proposals must stop short of interfering with or stepping into the role of managing the financial institution.”

On Monday, Bowman told another group that an independent third party should conduct a review of the Federal Reserve’s actions before the failures of the three large regional banks (Silicon Valley Bank (SVB] of Santa Clara, Calif.; Signature Bank of New York, N.Y., and First Republic Bank of San Francisco) – even though the agency has already produced two reports of its own about the failures.

Fed Gov. Michelle W. Bowman: The Role of Research, Data, and Analysis in Banking Reforms