Fed Official Promises Overhaul of Bank Regulation

The Fed’s new financial supervision chief has pledged to overhaul US banking rules, aiming to ease what she calls overly burdensome and unnecessary regulations.

Michelle Bowman outlined an agenda, confirming the Fed will soon roll out several initiatives to ease regulations and streamline oversight, particularly in areas long criticized by banks.

In her debut speech, Bowman argued that post-financial crisis regulations have driven core banking activities out of the regulated sector and into the more lightly regulated parts of the financial system.

She said: “With well over a decade of change in the banking system now behind us post-implementation, it is time to evaluate whether all of these changes continue to be relevant.”

As a result, Bowman confirmed that the Fed and other regulators will soon propose reforms to one of the key rules determining how much capital the largest US banks must hold.

The rule requires major banks to hold a set amount of high-quality capital against their total leverage, including both on-balance sheet assets like loans and off-balance sheet exposures such as derivatives.

However, Bowman argued that the rule discourages banks from engaging in low-risk activities like Treasury market intermediation, leading them to change their business in ways that aren’t justified or focused on customer needs. This is a concern echoed by Wall Street executives.

Other upcoming initiatives include changes to how the Fed oversees large banks, efforts to ease certain banking rules, and a review of ways to make the bank merger process less restrictive.