Fed governor who opposed new, proposed bank capital rule vows to reserve judgment on final

Noting that she did not support a proposal to raise large bank capital requirements, a member of the Federal Reserve Board said Tuesday she would reserve judgment for her support of a draft final rule, expected some time next year.

Speaking to the Ohio Bankers League in Columbus, Fed Gov. Michelle Bowman said she is looking forward to “engaging with my colleagues to improve the initial proposal” and then consider whether a final rule sufficiently addresses her concerns.

In July, the Fed Board issued a proposal raising capital standards for banks with $100 billion or more in assets. The proposal also requires the banks to hold long-term debt. Comments are due Jan. 16 on the proposal, which is intended to implement the so-called “Basel III endgame.”

“Policymakers may disagree about the best policy choices to further supervisory goals, but we must honestly assess the costs of reform, going beyond the direct costs to banks and their customers to include the potential harm to U.S. bank competitiveness in the global economy,” Bowman said, referring to the proposal. “Of course, this cost analysis would not be complete unless it incorporates the impact of other concurrent and complementary proposals. The analysis must include the new long-term debt proposal for all firms with more than $100 billion in assets, and the other existing rules that affect capital and firm incentives, like the stress capital buffer and the supplementary leverage ratio.”

In comments last week, Fed Board Chair Jerome H. (“Jay”) Powell predicted that a final rule on capital standards would reflect “broad support” on the Fed Board. He said the board is a “consensus-driven” group and that a final rule will be issued only after careful consideration of all comments.

In other comments, Bowman predicted that the federal banking agencies’ new, joint final rule implementing the Community Reinvestment Act (CRA) “may complicate, and in some instances frustrate, the important goals of the CRA.” She did not support the final rule’s adoption.

She also predicted that her agency’s proposed new rule on interchange fee caps “may be to simply shift costs from merchants to bank customers, and to make those costs far less transparent.” She said an example of that would be through higher loan interest rates charged by banks.

Gov. Michelle W. Bowman: Remarks on the Economy and Bank Supervision and Regulation