Pragmatism, analysis and cost effectiveness are three key principles the new top supervisor at the Federal Reserve will use in her role, she told an audience in Washington Friday.
Michelle W. Bowman, the new vice chair for supervision for the Fed – who was confirmed late Wednesday by the Senate in her position – told the Georgetown University McDonough School of Business Psaros Center for Financial Markets and Policy in Washington, D.C.
Bowman she said she would apply her principles in four areas: Reforming the capital framework; enhancing supervision; reviewing regulations and information collections; and seeking transparency, predictability, and fairness in consideration applications by banks for de novo charters, mergers “or any other application for bank regulatory approval.”
A former state regulator and legislator, Bowman indicated her principles follow a progression. “At the core of these principles is pragmatism, which focuses on first identifying the problem to be solved and then developing efficient solutions,” she said. “Once we have identified a need for reform, or a problem to be solved, our next task is to conduct a careful analysis of the intended and unintended consequences of any proposed policy solution, and to consider alternative approaches that lead to lower cost or better outcomes.”
Bowman outlined some specific goals for the areas. For capital framework reform, for example, Bowman targeted the Enhanced Supplementary Leverage Ratio (eSLR), which applied to global systemically important bank holding companies (GSIBs) in the U.S. She charged that the “increasing bindingness” of the eSLR on the large firms “did not result from careful policy debate and discussion. Instead, it is an unintended consequence of market and other bank regulatory requirements implemented after it was originally put in place.”
She suggested that the banking agencies should soon publish a proposal to fix that “and ensure that the eSLR resumes functioning as a backstop capital requirement.”
But Bowman said more is necessary on capital reform. She said a July conference will be hosted by the Fed to “broaden our perspective in the consideration of capital requirements for large banks.”
Bowman said that, in addition to considering potential changes to leverage ratio requirements and stress testing, the conference will also include a discussion of potential reforms to the GSIB surcharge and the Basel III capital requirements.
On the process for applications by banks for charters, mergers or services, Bowman said it should reflect both clear timelines for action and “transparency as to the information required in the application itself, and the standards of approval being applied.”
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